* Cash price optimism lifts CME live cattle * Most hog futures slip on fund liquidation By Theopolis Waters CHICAGO, Oct 11 (Reuters) - Chicago Mercantile Exchange feeder cattle futures rose to new highs for a second straight session on Friday fueled by a shortage of supplies, traders and analysts said. October feeder cattle ended 1.550 cents per lb higher at 167.475 cents. It earlier hit a new contract high of 168.475 cents in electronic trading. November settled at 169.275 cents, up 1.350 cents after making a new contract high of 169.725 cents. The decline in young cattle was attributed, in part, tomulti-year U.S. droughts that have hurt crops and driven up feed costs. CME feeder cattle drew support from the three-year slide in Chicago Board of Trade corn futures as the Midwest autumn crop harvest kicks into high gear. More affordable feed will help ease input costs for feedlot operators, allowing them to purchase young cattle. CBOT corn for December delivery settled down 5 cents at $4.33-1/4 a bushel. Some traders cited speculators buying CME feeder cattle in the belief that South Dakota ranchers hit by last weekend's record blizzard are replenishing their herds. "I'm not buying that scenario," a trader said. "Folks there are more concerned about cleaning up after the storm and trying to find their stray cattle than rebuilding their herds." LIVE CATTLE GAIN ON CASH OPTIMISM CME live cattle gained after traders bought the October contract in anticipation of steady to higher cash prices this week. Expectations for tight supplies through the end of the year boosted December futures to its highest level in eight months. Live cattle October closed 0.500 cent per lb higher at 128.800 cents while December finished at 132.475 cents, up 0.300 cent. Despite poor margins, packers could pay at least steady money for cattle given fewer animals up for sale, analysts and traders said. "I think we're at that point where everybody has been looking for that hole, or drop off, in cattle numbers. I think we've just stepped into that hole," said CHS Hedging analyst Steve Wagner. Cash cattle bids in the U.S. Plains were at $124 per hundredweight (cwt) against asking prices of $128 and higher, feedlot sources said. Cash-basis cattle a week ago fetched $125 to $126. Analytical market-research firm Urner Barry estimated this week's cattle slaughter at 623,000 head, 5,000 less than a week ago and 10,000 fewer than a year earlier for the same period. HOGS MOSTLY LOWER Other than CME spot October hogs, remaining contracts finished weaker. The spot October hog contract was led by speculation about at what price will the spot month settle after it expires on Monday Oct. 14. Spot October finished at 90.750 cents per lb, 0.500 cent higher. CME Group Inc said it will increase lean hog futures surveillance next week to prevent price manipulation under a pricing formula the exchange adopted to cope with the shutdown of the U.S. government. Anticipation of increased supplies in the near term and fund liquidation pressured deferred hog trading months. Urner Barry estimated this week's hog slaughter at 2.275 million head, 71,000 more than a week ago for the same period. Most-actively traded December hogs closed down 0.150 cent at 86.500 cents and February ended at 88.900 cents, 0.400 cent lower.
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