* Colder midmonth outlook could limit downside. * High storage, production continue to weigh on sentiment * Coming up: EIA short-term energy outlook on Tuesday By Joe Silha NEW YORK, Jan 7 (Reuters) - U.S. natural gas futures ended lower on Monday after some early buying, pressured by fairly mild near-term weather forecasts and government data showing gas production in October hit a record high for a second straight month. With inventories still at record highs for this time of year, many traders expect prices to remain on the defensive until another cold shot arrives to stir more heating demand. "Early on we saw specs (speculative traders) unwinding short positions which gave the market some support, but prices fell in response to the production report issued by the EIA which showed October output at a new record," said Gelber & Associates analyst Aaron Calder. Calder also noted that bullish traders were hampered by Monday's 11- to 15-day weather forecast which did not look as supportive as it did on Friday. After a chilly week last week, MDA Weather Services expects temperatures for the eastern half of the United States to average above normal for the next 10 days. While the private forecaster does see colder readings for most of the nation by midmonth, many traders remain skeptical about 15-day forecasts, noting computer projections that far out have not been reliable, often flipping from warm to cold and back again. Front-month gas futures on the New York Mercantile Exchange ended down 2.1 cents at $3.266 per million British thermal units after trading between $3.238 and $3.352. The front contract, which hit a three-month low of $3.05 on Wednesday, lost 5.2 percent last week on the milder forecast for this week. Traders said gas prices could pick up support from nuclear plant outages, which are running at nearly 9,000 megawatts this week, or 3,700 MW above average for this time of year. Gas-fired plants are typically used to offset any lost nuclear generation, but traders said the milder temperatures ahead were likely to lessen the need for replacement power. RIGS GAIN, OUTPUT STILL NEAR RECORD Baker Hughes data on Friday showed the gas-directed rig count rose by eight last week to 439, its third straight weekly gain. Drilling for natural gas has mostly been in decline for more than a year, with gas rigs down 53 percent since peaking in 2011 at 936 in October. But so far production has not shown any signs of slowing. Energy Information Administration gas production data on Monday showed that gross gas output in October climbed to 73.54 billion cubic feet per day, the second straight monthly record. INVENTORIES DROP MORE THAN EXPECTED Last week's gas storage report from the EIA showed inventories for the week ended Dec. 28 fell by 135 billion cubic feet, well above the Reuters poll estimate of 127 bcf. Despite the big draw, total storage of 3.517 trillion cubic feet is nearly 1 percent above year-ago levels and more than 12 percent above the five-year average. Early withdrawal estimates for Thursday's storage report range from 155 bcf to 189 bcf. That would be well above the 95-bcf pulled from storage during the same year-ago week. The five-year average draw for that week is about 149 bcf. This is the fourth straight year in which inventories headed into the heating season at an all-time high, offering a comfortable cushion to meet any winter spikes in demand.