By Philip Blenkinsop

ANTWERP, Belgium, June 4 (Reuters) - Diamond inventories have fallen to levels justifying a ramp-up of production with signs that the key Christmas sales season will be better this year than last, according to the head of De Beers, the world's largest diamond group.

De Beers

Gareth Penny told a meeting of diamond dealers in Antwerp that rough stocks were 20-30 percent down from mid-2008 peaks.

"There is clear evidence that rough (diamond) stocks have come down to reasonably acceptable levels... I am hearing that more rough needs to come into the system," he said.

De Beers, 45 percent owned by mining conglomerate Anglo American PLC (AAL.L), slashed production in the first quarter by 90 percent from the last three months of 2008 and by 91 percent year-on-year.

But the diamond group, which has 41 percent of the rough market, has hiked output in the second quarter with the restart in April of the major Debswana mines, which accounted for over 65 percent of De Beers production in 2008.

Penny said mining at the Debswana sites in Botswana was now pushing above 80 percent of capacity.

Demand for polished diamonds has fallen by as much as 30 percent and for rough diamonds by as far as 60 percent from mid-2008 peaks.

However, De Beers believes that consumer demand for jewellery is down a more modest 10-15 percent and has actually risen in China.

"This is not a 50-60 percent drop-off," Penny said.

De Beers noted that polished prices had stabilised in March and April and believes retailers should have worked through excess stocks by the first half.

"December, Christmas of 2009 will be better than December, Christmas of 2008. I think that's a pretty reasonable assumption from where we are sitting now," Penny said late on Wednesday 3 June. His comments were cleared for the media on Thursday 4 June.

"Stock markets are up, U.S. confidence indices are improving. There are a number of drivers suggesting that."

For the dealers, the hottest topic was whether De Beers would be increasing prices at monthly "sights". For them, a spread beteen rough and polished prices is crucial.

Rough prices fell by 30-70 percent from mid-year peaks in 2008, far more than the 20-30 percent decline of cut diamond prices.

"We would expect similar levels of magnitude to polished. We will continue to be prudent so we will show moderation," Penny told the audience, but added prices must be "aligned".

De Beers chose Antwerp for its first 'town hall' meeting, given the Belgian city handles about 80 percent of all rough stones and over half of polished diamonds. It plans further meetings in Israel later this month and in Mumbai in July.