CHICAGO, June 7 (Reuters) - The most active lumber futures contract at the Chicago Mercantile Exchange fell the maximum daily allowance on Monday, closing down 4.4 percent at an eight-month low on weak cash markets and a slow economy, traders said.

Cash lumber prices have trended lower since last Thursday, traders said. In addition, investors worry a weak economy will slow demand for lumber, especially after a federal tax credit for new home purchases ended in April.

"There is concern over the economy and there is concern the European debt crisis and what impact that may have here," said Curt Cunningham, president of Pacific Futures Trading.

"The $8,000 mortgage tax credit is gone and a lot of people think we robbed a big chunk of business that would have taken place in the second half by stepping up the pace of building in the first half to take advantage of that tax credit," he said. "The demand side doesn't look any better than the supply side right now."

July lumber closed down the $10 limit at $218 per thousand board feet and September was $9.90 lower at $226.10 per tbf.

Also worrisome for would-be lumber buyers was the elimination in June of a duty on imported Canadian lumber. Without the duty, shipments from Canada were expected to increase.

"Without the 15 percent tax penalty, I expect we will continue to decline (in cash) and still have plenty of wood come across the border," said Cunningham, adding that Canadian mills "have every incentive to get some product across the border."

Based on a formula calculated monthly by Random Lengths, the duty on Canadian wood was turned off in June. The computation is based on a composite price averaging $356 or higher for a four-week period from mid April to early May.

The duty will return in July after the recent four-week average composite price fell to $305 per tbf late last week. Lower cash spruce prices, which fell to $229 per tbf, after sales at $320 per tbf in April, pressured composite prices. (Reporting by Jerry Bieszk; Editing by Alden Bentley) ((jerry.bieszk@thomsonreuters.com; 312-408-8725; Reuters Messaging: jerry.bieszk.reuters.com@reuters.net)) Keywords: MARKETS LUMBER CME (For help: Click "Contact Us" in your desk top, click here or call 1-800-738-8377 for Reuters Products and 1-888-463-3383 for Thomson products; For client training: training.americas@thomsonreuters.com ; +1 646-223-5546)

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