* Says short-term upside limited
* Says EUAs unlikely to fall to 6 euros a tonne
LONDON, March 20 (Reuters) - Societe Generale has lifted its year-end price forecast for European Union carbon permits by 10 percent, citing an increased probability that the EU will agree to withhold some of the carbon market's excess supply, the French bank said.
SocGen analysts estimated benchmark December 2012 EU Allowances (EUAs) would reach 11 euros ($14.57) a tonne by the end of the year, up one euro from a previous estimate made in mid-January, a bank research note said on Tuesday.
By 1040 GMT, the front-year EUA contract was trading at 7.46 euros a tonne, down 4.2 percent from the previous day's close.
The benchmark contract has been struggling to recover since hitting a record low of 6.30 euros last December, as the euro zone's fiscal crisis continues to sap demand at a time when there is a glut of supply in the carbon market.
The oversupply of permits has prompted calls by European Parliament and others to set aside a certain number of allowances after 2013, a move which would help bolster the carbon price.
The EU carbon market, the world's biggest, sets a cap on more than 10,000 power and industrial plants across the 27-nation bloc, covering around half of the region's emissions of carbon dioxide.
Yet analysts estimate the scheme to be oversupplied with hundreds of millions of permits, largely because the financial crisis since 2008 has choked demand for carbon permits.
Officials from the European Commission, the European Parliament and EU governments will try to finalise an energy savings law at a meeting on March 26, which will include discussion on how to support carbon prices.
"The discussion on the set-aside could push prices up some more, but it would take a strong collective decision by the European Parliament and (EU) Member States, leading to volumes of more than 1 billion EUAs being withheld," the note said.
"We think this unlikely," Societe Generale energy and carbon analyst, Emmanuel Fages, wrote in the note, adding that a set aside of 800 million EUAs is likely to be priced in the market.
Barring a strong recession or a new, adverse change in regulation, the carbon price is unlikely to fall back to 6 euros, Fages said.
"At the same time, most of the 'good news' is probably priced in and we think the short-term upside is limited," he added.
$1 = 0.7552 euros Reporting by Jeff Coelho; Editing by Mark Potter