UPDATE 1-Alberta lowers deficit forecast as revenue rises

* Alberta lowers deficit forecast 38 pct to C$4.3 billion

* See higher income from investments, royalties, taxes

* Raises oil price forecast, drops nagas expectations

CALGARY, Alberta, Nov 26 (Reuters) - The oil-rich Canadian province of Alberta lowered its budget deficit forecast on Thursday due to higher than expected revenue from oil royalties, corporate taxes and investments.

In its fiscal second-quarter budget update, the Alberta government said it expects a deficit of C$4.3 billion ($4.04 billion) for the current fiscal year, down from its first-quarter forecast for a C$6.9 billion shortfall and from the C$4.7 billion deficit it predicted in its April budget.

"It's a good news story but a deficit is still a deficit," Iris Evans' the province's finance minister, said on a conference call.

Alberta ran 14 straight budget surpluses until breaking its string last year as oil and gas prices plunged, reducing the government's take from the energy industry. It expects to return to surplus in the 2012-13 fiscal year.

Government revenues for this fiscal year are now expected to be C$32.6 billion, up from a first-quarter estimate of C$29.6 billion and the budget forecast of C$31.6 billion.

Strengthening oil prices have boosted the province's expected royalty revenue. Evans now expects to reap C$5.9 billion from nonrenewable resource production, a C$1.7 billion rise from its second quarter estimate but C$346 million less than its budget forecast due to low natural gas prices.

Alberta now expects oil prices to average $67.51 a barrel over the fiscal year, up from its $55.50 budget forecast. Natural gas prices are pegged at an average C$3.25 per thousand cubic feet, down 41 percent from the budget estimate.

Corporate taxes are expected to be C$3 billion, up C$553 million from the budget forecast, while the estimate for investment income rose 89 percent to C$3.4 billion. ($1=$1.06 Canadian) (Reporting by Scott Haggett; editing by Peter Galloway) ((scott.haggett@thomsonreuters.com; Reuters Messaging: scott.haggett.reuters.com@reuters.net; +1 403 531-1622))