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UPDATE 2-Alpha Natural, Walter Energy cut coal output to boost prices

* Alpha Natural sees metallurgical coal price recovery in late 2014

* Walter says asset sales depend on coal price recovery

* Alpha Natural also tightens thermal sales forecast

* Alpha Natural shares up 6 pct, Walter shares down 6 pct

(Adds comments from conference calls, analyst comments)

May 1 (Reuters) - Alpha Natural Resources Inc and Walter Energy Inc cut their production forecast for metallurgical coal, joining rival U.S. coal miners in tightening supply in a bid to drive up prices.

Coal companies have been idling high-cost mines as the two-year long slump in metallurgical, or steelmaking, coal prices was compounded by weak demand from Europe and Asia, especially China.

However, Alpha Natural on Thursday said the supply crunch would help metallurgical coal prices improve later this year and into 2015, sending the stocks of U.S. coal companies higher, led by a 6 percent rise in Alpha Natural's shares.

But Walter shares fell 6 percent on concerns that the company's liquidity issues could linger as the weak market would hamper its planned asset sales.

Both Alpha Natural and Walter reported a bigger-than-expected loss for the quarter ended March 31, hurt by the weak prices.

The benchmark settlement price for hard coking metallurgical coal fell to $120 per tonne for the quarter ending June, down 16 percent from the previous quarter and a price that Alpha Natural called "unsustainable".

"We found the company's market commentary for an improving metallurgical market on both the pricing and supply-demand sides during 2015 to be encouraging and realistic," Simmons & Co analysts said in a note to clients.

Alpha Natural also expects to benefit from recovering demand for power-generating thermal coal due to the rise in prices of natural gas, a competing fuel, and a fall in coal stockpiles at U.S. utilities after the harsh winter.

Walter, which has idled two Canadian mines, will be unable to benefit much from the recovering demand for thermal coal as almost 90 percent of its business comes from metallurgical coal.

Walter is looking to raise $250 million by selling non-core assets in West Virginia, Alabama and the United Kingdom, but on Thursday warned that the timing of any sale would depend on the recovery in metallurgical coal markets.

The company's total liquidity of $676 million as of March 31 is much lower than the roughly $1.5 billion-plus liquidity at most of its U.S. peers, including Alpha Natural.

Walter cut its forecast for 2014 metallurgical coal production to 9-10 million tons from 11-12 million tons.

Alpha Natural lowered its shipments forecast for the year to 15-18 million tons from 16-20 million tons and tightened its thermal coal sales forecast to 26-30 million tons from 24-30 million tons.

Arch Coal Inc has also cut its metallurgical coal sales forecast, while Peabody Energy Corp is reviewing some of its higher-cost operations.

Alpha Natural shares were up 4 percent at $4.47 and Arch Coal shares were up 2.3 at $4.68 in afternoon trading. Walter Energy shares down 4.6 percent at $6.87, while Peabody Energy shares were also slightly lower at $18.85.

(Editing by Don Sebastian, Sriraj Kalluvila and Savio D'Souza)

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