UPDATE 1-Coal mining shares tumble

(Adds more analyst, trader comments, updates share prices)

NEW YORK, July 2 (Reuters) - Stocks in coal mining companies tumbled on Wednesday after coal prices fell in what traders said was a long-awaited correction.

Analysts said the benchmark European price dropped from around $225 per tonne to below $200, which in turn dragged down U.S. prices by as much as $20.

London's API2 coal swaps plunged by as much as $24, a fall unprecedented in the past five years of OTC swaps trading. The market experienced a violent correction with swaps falling sharply minute by minute, traders said.

The correction was long overdue, traders said, because prices have risen sharply and steadily for the past few weeks. Prices stabilized around $2 below physical levels at the close in London.

The Dow Jones coal index .DJUSCL was down 13.83 percent in New York on Wednesday afternoon.

"We have been waiting for a correction for months," Calyon Securities coal industry analyst Gordon Howald said, adding that some U.S. coal company stocks have risen between 40 percent and 60 percent since May 1.

"It's a correction and not a big deal," he said. "Nothing has changed in the global coal picture."

Howald said that what prompted Wednesday's correction was the refusal by some Asian utilities to pay $220 per tonne for steam coal, which was selling for $170 last week. "So it corrected down to $200."

Jeremy Sussman, a coal industry analyst with Natixis Bleichroeder, said U.S. coal producers have been signing contracts "at very good numbers, well into the triple digits, but the stocks don't reflect that.

"We are telling people now is a good time to buy."

Frederic Ruffy, options strategist at Web information site WhatsTrading.com, said the whole sector was moving lower on the price correction.

Options were active in Consol Energy (CNX.N), Arch Coal (ACI.N), Massey Energy (MEE.N) and other coal stocks, he said.

Sentiment was mixed but some players were using the decline in the sector as an opportunity to enter bullish option trades after a long awaited pullback.

"With the price of coal dropping, most of the coal stocks are under major pressure today," said William Lefkowitz, options strategist at brokerage firm vFinance

Miners were the top losers in London, with BHP Billiton (BLT.L), Rio Tinto (RIO.L) and Anglo American (AAL.L) all falling about 4.4 percent.

On the New York Stock Exchange, Arch Coal closed down 17.2 percent at $62.21, Consol dropped 14.6 percent to $95.57, Massey fell 18.9 percent to $74.87 and Peabody Energy (BTU.N) was down 9.3 percent at $77.90. (Reporting by Steve James in New York; additional reporting by Jackie Cowhig in London, Doris Frankel in Chicago and Bruce Nichols in Houston; Editing by Gary Hill)