CHICAGO, May 14 (Reuters) - Chicago Mercantile Exchange live cattle and feeder cattle futures rallied on Tuesday as soaring boxed beef prices fueled hopes for increased demand, analysts said.

The choice boxed beef cutout value climbed by $5.44 to $304.39 per cwt after jumping by $4.38 on Monday, according to U.S. Department of Agriculture data. Select cuts surged $6.64 to $293.82 after rising by $3.01 on Monday.

The increases sparked short covering in futures and raised hopes that meatpackers may increase their demand for cattle to process, traders said. Packers slaughtered an estimated 123,000 cattle on Tuesday, down from 124,000 cattle a week ago and 126,993 cattle a year ago, according to the USDA.

"We've had quite a bit of strength in boxed beef to start the week," said Matt Wiegand, commodity broker for risk management firm FuturesOne in Nebraska.

June live cattle futures finished 2.6 cents higher at 178.175 cents per pound and reached the highest level since April 26. August feeder cattle futures closed 4.325 cents higher at 255.675 cents per pound and touched the highest level since May 2.

Livestock traders are monitoring beef demand heading into the upcoming Memorial Day holiday weekend, which is considered the start of the summer grilling season when consumers eat more steaks and hamburgers.

"We've been looking for that seasonal demand to pick up," said Austin Schroeder, analyst for Brugler Marketing & Management.

Cattle inventories are limited after ranchers reduced their herds in recent years due to high feed costs and a drought in the western United States. Declining prices for corn used for livestock feed on Tuesday helped drive up feeder cattle futures, traders said.

CME lean hog futures also closed higher, with the June contract advancing 0.85 cent to 98.325 cents per pound.

(Reporting by Tom Polansek in Chicago; Editing by Will Dunham)