CHICAGO, Aug 18 (Reuters) - Chicago Mercantile Exchange lumber futures closed lower on Tuesday following the unexpected decline in housing starts, but losses were limited by the already large discount of futures to cash, traders said.
* New U.S. housing starts and permits unexpectedly fell in July, pulled down by steeper declines in multifamily units. Commerce Department said housing starts fell 1 percent to a seasonally adjusted annual rate of 581,000 units, well below market expectations for 600,000 units.
* Cash lumber prices are also seen slipping somewhat on slow demand, but futures are already holding a more than $20 discount to the latest quoted spruce price.
* September lumber closed $1.30 per thousand board feet lower at $181.40, and November was off $2.70 at $176.70. September posted a one-month low and November set a new 5-1/2-month low.
* Random Lengths on Friday quoted cash spruce price at $205 per tbf, unchanged from Wednesday and a week ago. Random Lengths will update that price early on Wednesday.
* "Demand eased in Western Canada and the West," Random Lengths said. "Most producers had enough orders to at least hold to recently established prices."
* "Traders kept an ear to the ground on the labor front in the B.C. Interior. "Meanwhile, cooler weather in most of the western U.S. and B.C. eased fire danger and fears of log shortages," they said.
* "Traders looked for evidence of increased production in the wake of summer curtailments and shutdowns winding down. But mills were slow to ramp up output, especially in Eastern Canada where a weak chip market added to a list of market challenges," the reporting agency said in Fridays weekly report.

(Reporting by Jerry Bieszk; Editing by Marguerita Choy)

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