By Joe Silha

NEW YORK (Reuters) - U.S. natural gas storage levels climbed to an all-time high of 3.589 trillion cubic feet last week, according to data released on Thursday by the U.S. Energy Information Administration.

That level easily eclipsed the previous record high of 3.565 tcf from 2007 with at least five more weeks to go in the stock-building season ahead of winter.

One of the coolest summers in 10 years, a deep recession that sharply cut industrial demand and strong gas production, particularly earlier in the year, helped lift inventories to record high levels this year.

The EIA report showed that stocks gained 64 billion cubic feet for the week ended September 25, slightly above the Reuters poll estimate for a 61 bcf build.

Most analysts expect total storage to set new highs above 3.8 tcf by winter, and some still expect stocks to test EIA's revised limits of peak storage capacity this year at 3.9 tcf.

Natural gas futures prices on the New York Mercantile exchange, off early with a soft physical market and mild near-term weather forecasts, lost more ground after the 10:30 a.m. EDT report, sliding some 38 cents, or 8 percent, to below $4.50 per million British thermal units.

"In the near term, we don't think this report will help November futures fight off the need to converge with a cash market that is far lower," said Tim Evans, energy analyst at Citi Futures Perspective in New York.

Physical gas prices recently have been trading at steep discounts to forward futures prices amid concerns the market will become even more oversupplied in October as storage caverns fill to capacity and raise pipeline pressure.

Cash prices at Henry Hub, the key delivery point in Louisiana, were trading Thursday morning below $3 per mmBtu, or about $1.80 below November futures, a discount that could tempt storage players to try to jam even more gas into storage.

Utilities typically build gas inventories from April through October to help meet peak winter demand.

Total inventories now stand at 491 bcf, or 16 percent, above last year and 481 bcf, or 15 percent, above the five-year average.

Storage provides about 25 percent of the gas used to heat homes and businesses, and the huge cushion means there should be no supply shortfalls even if winter turns out to be cold.

WINTER, ECONOMY KEY

But while the gas market may be oversupplied now, analysts agree a lot depends on demand longer term to bring the market back into balance.

"You need a (cold) winter like we haven't seen in a long time, and you probably need the economy to kick in a bit too in order to pull all this gas out (of storage)," said Tom Saal, senior vice president at Hencorp Futures in Miami.

"If we don't get a very cold winter as advertised, prices will plunge," Saal said, adding futures prices could slide back to $3 or $3.50 without a decent heating season.

REGIONAL RECORDS

Inventories in the Producing Region and West Region had already hit all-time highs before this report.

Stocks in the West set another high last week of 489 bcf, The previous high for that region was 478 billion cubic feet from 2007.

Producing Region storage climbed to a new all-time high of 1.145 tcf last week versus the 2007 record of 1.074 tcf.

Stocks in the East have not yet broken their all-time high of 2.013, standing at 1.955 tcf in the latest report, but most analysts expect that mark to fall in the next few weeks unless some very cold weather arrives to kick up regional heating demand and slow injections.

(Additional reporting by Eileen Moustakis in New York; Editing by Marguerita Choy)