On the ICE Futures U.S. Exchange, cotton futures for May delivery traded at USD0.9098 a pound during European afternoon trade, gaining 0.6%.
It earlier rose by as much as 0.9% to trade at a session high USD0.9138 a pound. Prices dropped nearly 2% on Wednesday to settle at USD0.9032.
Sentiment on the fiber improved after China lifted the purchase price of cotton by 3% in the current marketing season.
The China Cotton Association said the government would pay cotton farmers CNY20,400 a tonne, a rise of CNY600. The price is the equivalent of nearly USD1.45 a pound in U.S. markets.
The move is designed to forestall a decline in domestic cotton acreage after the Cotton Research Institute at the China Academy of Agriculture Science last week forecasted a 6.1% drop in Chinese cotton plantings to 4.85 million hectares.
However, market analysts had doubts such a move would provide an incentive to growers, as Chinese farmers’ profits for the 2011-12 season more than halved, weighed down by lower commodity prices and higher labor costs.
China is both the world’s largest producer and consumer of the fiber. Reduced acreage could prompt the country to import more of the fiber next year.
Chinese cotton imports rose by almost 19% in 2011 to 3.36 million tonnes, with supplies coming mostly from India and the U.S.
Cotton traders have been focusing on prospects for increased Chinese demand in recent months after the country started a cotton stockpile in September to protect domestic farmers’ interests.
Meanwhile, in broader market news, Federal Reserve Chairman Ben Bernanke expressed a cautious view on the U.S. economic recovery, while refraining from suggesting a third round of bond-buying.
In testimony before Congress on Wednesday, Fed chair Bernanke said that while keeping monetary stimulus is warranted, rising gasoline prices are likely to push up inflation temporarily and the drop in unemployment has been more rapid than expected.
But investors looking for signs of more monetary easing were disappointed as he refrained from mentioning any plans to move toward a third round of quantitative easing bond-buying, known as QE3.
Demand for cotton, as a non-food agricultural commodity, is seen as more closely linked to economic conditions and consumer sentiment than that for other farm crops.
Elsewhere, on the ICE Futures Exchange, coffee futures for May delivery rose 0.34% to trade at USD 2.0368 a pound, while sugar futures for May delivery fell 0.68% to trade at USD0.2485 a pound.