* CME live cattle up on cash price optimism * Hog futures snapback on fund buying, spreads By Theopolis Waters CHICAGO, Oct 10 (Reuters) - Chicago Mercantile Exchange feeder cattle futures on Thursday rose to a record high for the second time this week as reduced corn costs encourage feedlots to buy young cattle. Chicago Board of Trade corn for December delivery settled down 5-1/4 cents at $4.38-1/4 a bushel, weighed by seasonal harvest pressure and talk that the government might lower its ethanol blending requirements. Firm CME live cattle futures and fewer cattle available for feedlots to draw from furthered futures' advances, traders said. October feeder cattle ended 1.375 cents per lb higher at 165.925 cents. It earlier hit a new contract high of 166.000 cents in electronic trading. November settled at 167.925 cents, up 1.550 cents and marked a new contract high of 168.100 cents. LIVE CATTLE UP WITH CASH HOPES CME live cattle closed firm on short-covering in anticipation of steady-to-higher cash cattle prices this week, traders and analysts said. They said the live cattle market drew support from the push by feeder cattle futures to new highs. Live cattle October closed 0.300 cent per lb higher at 128.300 cents while December finished at 132.175 cents, up 0.225 cent. Futures' recovery from Wednesday's losses and less cattle available for sale stirred optimism for cash prices this week, despite unprofitable packer margins and tepid wholesale beef demand. Isolated cash cattle bids in the U.S. Plains stood at $124 per cwt against $128 and higher asking prices, feedlot sources said. Cash-basis cattle last week fetched $125 to $126. Thursday's wholesale choice beef price, or cutout, was up 33 cents per cwt from Wednesday to $192.30. The select price slipped 24 cents to $177.68, according to analytical market research firm Urner Barry. Some packers cutback slaughter to offset tight supplies, recoup lost margins and underpin wholesale beef prices. Urner Barry estimated Thursday's cattle slaughter at 122,000 head of cattle, 1,000 less than a week ago for the same period. HOGS PARE EARLIER LOSSES Fund buying and short-covering helped futures shrug off early-session losses led by lower cash hog and wholesale pork prices, traders said. Spot October finished at 90.250 cents per lb, 0.425 cent higher. December closed up 0.125 cent at 86.650 cents. Traders bought spot October and sold deferred months in anticipation of where the spot month will settle after it expires on Oct. 14. CME Group Inc said that it will increase lean hog futures surveillance next week to prevent price manipulation under a pricing formula the exchange adopted to cope with the shut down of the U.S. government. Dan Norcini, an independent futures trader" called the exchange's adjusted settlement price system "inherently flawed." CME's new settlement calculation is based on the price movements of hog futures rather than on cash prices, some of which are still available at terminal markets, he said. Terminal hog market prices were mixed on Thursday, according to analysts and hog buyers. They said some processors have all the hogs they need for this week's production while others bought supplies for early next week. Hog buyers and traders forecast Saturday's slaughter at about 145,000 head.