* Mild mid-month weather seen slowing demand
* Big storage build on Thursday called bearish
* Record production, storage keep buyers cautious
* Cool near-term forecast helps limit downside
* Coming up: Baker Hughes rig data, CFTC trade data Friday
(Releads, adds analyst quote, updates prices)
By Joe Silha
NEW YORK, Oct 5 (Reuters) - U.S. natural gas futures turned mixed on Friday, with front-month contracts lightly pressured by Thursday's bearish storage report and forecasts for mild mid-month weather, while colder days expected next week helped limit the downside.
Recent gains - the front contract has climbed 20 percent over the previous eight sessions - had been backed by forecasts for much cooler weather for the Midwest and East late this week and next week.
Record high inventories for this time of year and production at or near an all-time peak have most fundamental traders skeptical of the upside, particularly with more moderate temperatures expected by mid-month.
"The natural gas market is modestly lower, but continues to idle within its recent trading range. Colder than normal temperatures for much of the continental U.S. (in the near term) are still a support for cash prices," Citi Futures Perspective analyst Tim Evans said in a report.
But Evans noted that the milder forward outlook leaves open the possibility that nearby futures will fall toward the $3 level in coming weeks.
At 12 p.m. EDT (1600 GMT), front-month gas futures
the New York Mercantile Exchange were down 1.9 cents at $3.387 per million British thermal units after trading between $3.373 and $3.435. Most deferred months remained up slightly.
The front contract posted a 2012 high of $3.546 on Tuesday.
Private forecaster MDA EarthSat expects temperatures in the Northeast and Midwest, key gas-consuming regions, to average normal or below normal for the next week or so, then moderate to seasonal or above seasonal levels by mid-October.
Competition from low-priced coal could also limit the upside in gas prices. As gas prices push well above $3, they become less competitive with coal and some utilities that were burning cheaper gas to generate power may switch back.
Loss of that demand, which helped prop up gas prices all summer, could force more gas into a well-supplied market.
Most analysts agree gas prices need to be well below $3 this autumn to ensure switching demand.
Producers, too, could be tempted if prices move much higher, opting to hook up wells that have been drilled but not flowing because gas prices below $3 were unattractive.
BEARISH STORAGE REPORT
Data on Thursday from the U.S. Energy Information Administration showed that domestic gas inventories rose last week by 77 billion cubic feet to 3.653 trillion.
Most traders viewed the build as bearish, noting it came in well above the Reuters poll estimate of 71 bcf.
But others noted it cut the surplus relative to last year by 24 bcf to 272 bcf, or 8 percent above the same week in 2011. It also slightly trimmed the excess versus the five-year average, reducing that surplus by 1 bcf to 281 bcf, or 8 percent.
(Storage graphic: )
A huge inventory surplus, which peaked in late March at nearly 900 bcf above a year earlier, has been cut by 69 percent as record heat this summer slowed weekly storage builds.
But inventories are still at record highs for this time of year and likely to end the stock-building season above last year's all-time peak of 3.852 tcf.
At 86 percent full, storage is hovering at a level not normally reached until the last week of October and still offers a huge cushion that can help offset any weather-related spikes in demand or supply disruptions from storms.
Early injection estimates for next week's EIA report range from 76 bcf to 98 bcf versus a year-earlier build of 108 bcf and the five-year average increase for the week of 84 bcf.
PRODUCTION ALSO HIGH
Traders were waiting for the next Baker Hughes drilling rig report due later on Friday.
Drilling for natural gas has been in a near-steady decline for almost a year, with the gas-directed rig count down some 54 percent since last October and posting a 13-year low last week.
But so far production shows few, if any, signs of slowing.
(Rig graphic: )
While dry gas drilling has become largely uneconomical at current prices, gas produced from more-profitable shale oil and shale gas liquids wells has kept output stubbornly high.
EIA gross natural gas production data last week showed that July output climbed 0.4 percent from June to 72.58 bcf per day, just below January's record high of 72.74 bcfd.
(Reporting by Joe Silha; Editing by Dale Hudson and Bob Burgdorfer)
Keywords: MARKETS NYMEX/NATGAS