NEW YORK (Dow Jones)--Natural-gas futures continued their downward spiral Thursday, reaching a fresh 7 1/2-year low after U.S. data failed to calm traders worried about a supply glut.

Natural gas for October delivery on the New York Mercantile Exchange settled 20.7 cents lower, or 7.62%, at $2.508 a million British thermal units. Prices reached a low of $2.50/MMBtu, the lowest since March 2002.

Futures opened slightly lower and tumbled after government data showed a build in inventories of 65 billion cubic feet last week, matching the average forecast of analysts and traders in a Dow Jones Newswires survey. The injection was just above the five-year average for this time of year, but below last year's 92 bcf build.

Futures held the key $2.50/MMbtu support level, but prices could fall further if U.S. non-farm payroll data released Friday don't point to an imminent economic recovery, said Phil Flynn, an analyst with PFG Best in Chicago. Gas traders have eyed economic data closely for signs of a rebound that could boost gas demand in the industrial sector.

"The data has to create some kind of demand hope for the gas market," Flynn said. "Otherwise, what is there that's bullish at this point? We have the potential for the biggest glut of gas we've had in years."

The latest build in stockpiles brings the total amount of gas in storage to 3.323 trillion cubic feet, 18% above the five-year average.

Although the rise wasn't much larger than normal, it was enough to fuel concerns about brimming inventories. Sluggish demand during the economic downturn and robust production from onshore gas fields have led to an overabundance of gas. Storm threats to energy infrastructure in the Gulf of Mexico haven't materialized.

Moderate summer temperatures in the Midwest and Northeast have also curbed gas demand by reducing air conditioning use. Gas-fired power plants generate the electricity needed to run air conditioners in homes and businesses.

Many analysts predict that storage facilities will reach full capacity - an estimated 4 trillion cubic feet - before the beginning of the winter heating season, when withdrawals from gas stockpiles usually begin. Full storage would force gas producers to curtail output involuntarily, bringing supplies closer in line with demand and supporting prices.

But the market could stage a dramatic rally if a hurricane threat to U.S. energy infrastructure in the Gulf of Mexico develops, forcing traders who have bet on falling gas prices to buy back contracts, said Allen Rather, a private energy analyst in Victoria, Texas.

"If something does happen over Labor Day weekend in terms of a tropical storm or a pipeline outage, the market is pretty vulnerable to a rally," Rather said.


FUTURES SETTLEMENT NET CHANGE
Nymex Oct $2.508 -20.7c
Nymex Nov $3.662 -20.7c
Nymex Dec $4.509 -17.6c

CASH HUB RANGE PREVIOUS DAY
Henry Hub $2.00-$2.09 $2.22-$2.32
Transco 65 $2.00-$2.09 $2.20-$2.26
Tex East M3 $2.23-$2.29 $2.43-$2.51
Transco Z6 $2.24-$2.30 $2.43-$2.50
SoCal $2.33-$2.54 $2.44-$2.64
El Paso Perm $2.01-$2.17 $2.24-$2.32
El Paso SJ $2.02-$2.18 $2.19-$2.26
Waha $2.10-$2.16 $2.27-$2.35
Katy $2.04-$2.15 $2.22-$2.32



-By Christine Buurma, Dow Jones Newswires; 212-416-2143; christine.buurma@dowjones.com