--Natural gas prices lose steam after 14% jump last week

--Futures recently down 0.9c to $2.177/MMBtu

--Traders wary that recent bounce may be over

By Jerry A. DiColo

Of Dow Jones NEWSWIRES

NEW YORK -(Dow Jones)- Natural gas futures dropped slightly Monday, pausing after a surge of nearly 14% last week even as U.S. supplies remain near record levels for this time of year.

Natural gas for June delivery recently traded 0.9 cent lower at $2.177 a million British thermal units on the New York Mercantile Exchange, after trading as high as $2.197/MMBtu earlier in the session.

Prices wavered between gains and losses as traders weighed a recent price surge that has pulled natural gas back from decade lows. But several analysts have called the latest rally a technical correction that could quickly reverse on rising inventory levels or weather forecasts that signal lower demand.

"The market is having trouble putting together back-to-back days of gains," said Gene McGillian, a broker and analyst at Tradition Energy. "There are people that will support the market under $2, but not many people are buying in the $2.20 area."

U.S. gas stockpiles rose to 2.548 trillion cubic feet last week, more than 55% above five-year average levels for this time of year. Supplies continue to rise despite some cutbacks in domestic production. Oilfield-services firm Baker Hughes Inc. (BHI) said gas drilling rigs fell by 18 last week to 613, down by more than 30% from last year.

Mild temperatures kept gas-fired heating demand low through the winter, resulting in stockpiles at record levels entering the so-called "shoulder season" when heating demand drops and cooling demand hasn't begun for most of the U.S.

Gas traders are now concerned that U.S. inventories may reach capacity by October. But with prices already near the lowest levels in more than 10 years, many traders are wary of betting on a steeper drop, fearful that more producers will cut output or storms from the coming Atlantic hurricane season could reduce production in the Gulf of Mexico.

That has made the market susceptible to sharp, but potentially short-lived, price rallies.

"The market was long overdue a correction," said analysts at Kase and Co., in a note to clients.

Natural gas for next-day delivery at the benchmark Henry Hub in Louisiana recently traded at $2.11/MMBtu, according to IntercontinentalExchange, compared with Friday's average of $2.045/MMBtu. Natural gas for next-day delivery at Transcontinental Zone 6 in New York traded at $2.38/MMBtu, up from $2.2557/MMBtu.

-By Jerry A. DiColo, Dow Jones Newswires; 212-416-2155; jerry.dicolo@dowjones.com