CHICAGO, July 28 (Reuters) - Lumber futures on the Chicago Mercantile Exchange surged 5 percent on Tuesday and have gained more than 10 percent the past two days amid further demand stimulated by growing mill curtailments due to a rising Canadian dollar.
An improved U.S. housing picture, forest fires in British Columbia and chart-based fund buying added to gains, traders said.
"We had strong short covering off of more mill curtailments because of the strong Canadian dollar. The Canadian dollar continues to pressure the (Canadian) producers," said Robin Cross, broker with FC Stone. "You lose big money with this Canadian dollar at 92 cents and it still looks like it is in a strong up-trend."
West Fraser Timber Co Ltd said on Monday it planned to curtail lumber production at three of its B.C. sawmills for two weeks in response to continuing weak markets and a strengthening Canadian dollar.
A decision to restart operations will depend on market conditions, which will be reviewed on an ongoing basis, West Fraser said.
The Canadian dollar rose to a nine-month high on Monday before encountering some resistance on Tuesday.
"If this (Canadian) dollar stays up like this, I don't think market conditions are going to improve, and you could see some extended shutdowns," Cross said.
* September lumber closed up the $10 daily limit at $207.00 per thousand board feet, and November was up $7.50 at $209.60. September posted a three-week high and November a one-month high.
* U.S. housing markets also showing improvement added to the bullish sentiment in futures.
* Sales of new single-family homes rose 11 percent in June, largest monthly rise since 2000, while the inventory of homes for sale fell to an 11-year low, Commerce Department reported.
* "We had good (June) new home sales, we had good existing home sales report last week and starts and permits were better than expected last month. The bottom is in," Cross added.
* U.S. single-family home prices rose in May from April, the first monthly increase in nearly three years, according to Standard & Poor's/Case Shiller home price indexes on Tuesday.
* Forest fires in British Columbia, the largest producer of spruce that is exported to the U.S., has also been supportive to futures the past few days. Lightning strikes sparked additional forest fires during the weekend and more fires are expected due to very dry conditions in western Canada.
* Cash lumber prices have been surging since dipping to the low $160s on Wednesday, with floor sources saying some mills have raised asking prices to $194 to $196 per tbf early on Tuesday.
* Random Lengths on Friday quoted cash spruce at $174 per tbf, up $2 from Wednesday and down $4 from the previous week.
* "Action in the Western S-P-F market drew traders' attention late Wednesday, as wholesalers covered shorts and some distributors quietly replenished inventories," Random Lengths said in its end of week report on Friday.

* "Plenty of speculation about market prospects for the remainder of the summer circulated, with labor talks in Canada, fire season, the U.S./Canada exchange rate, and the potential for more curtailments all cited as factors that could further tighten supplies," the reporting agency said.

(Reporting by Jerry Bieszk; Editing by Walter Bagley)

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