* Market has ignored bearish news – analyst
* Funds most bullish since January – CFTC
* Weather watch will continue next week
NEW YORK, Aug 31 (Reuters) – Cotton prices rose on Friday to post an 8 percent jump in August, notching their biggest monthly gain in a year and a half, as speculative investors bet that torrid weather conditions would hamper global output and help to eat into record stockpiles.
The benchmark December cotton contract rose for a third straight day on Friday, settling 0.32 cent, or 0.42 percent, higher at 77.26 cents per lb.
That was just 0.03 cent shy of its intraday high and just off Thursday’s 3-1/2 month high. The U.S. market will be shut on Monday for the U.S. Labor Day holiday.
The rally, the biggest one-month gain since February last year, was driven by a renewed appetite among speculators for fibers despite a multitude of bearish signs.
“The market has ignored bearish news, but held together even in the face of limited bullish news so at the very least, it will be interesting to see how it behaves into September,” said Knight Futures cotton analyst Sharon Johnson.
It even outperformed the broader commodities market. The 19-commodity Thomson Reuters-Jefferies CRB index rose slightly more than 3 percent.
Non-commercial dealers are ending the northern hemisphere summer their most bullish since January, according to Friday’s U.S. Commodities Futures Trade Commission (CFTC). They added just over 3,000 lots to take their net long to 15,405 lots in the week to Aug. 28.
An absence of producer hedging exacerbated the gains. Growers hope for a return to first-quarter levels around $1 per lb, Johnson said.
The bulls expect that a potentially devastating drought in India will hurt crops and force the world’s No. 2 producer to restrict exports. Traders are also watching for damage from Hurricane Isaac which drenched crops in Mississippi and Louisiana, key U.S. cotton belt states.
So far, reports have indicated the damage has been minimal.
In the longer term, record inventories will be depleted as farmers switch out of fibers and grow more soybeans to take advantage of the soaring grains markets.
But before that happens, traders will need to confront the more alarming possibility that China plans to sell some of its strategic stockpile, potentially derailing the recent rally.
Weather watch will continue next week, with attention turning to west Texas, the United States’ biggest cotton-growing region, where recent rainfall has been meager.
Elsewhere in the broader market, cotton garnered some support from a weaker dollar which hit an eight-week low against the euro after Federal Reserve Chairman Ben Bernanke reinforced expectations for further monetary easing to revive the world’s largest economy.
Bernanke, speaking at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming, said the U.S. economy faced “daunting” challenges and that the Fed would act as needed to strengthen the recovery. But he did not explicitly signal an imminent move.
Demand has been hit by weak retail sales due to a slack global economy as well as a switch by mills to using less-volatile synthetic fibers. (Reporting by Josephine Mason;Editing by Bob Burgdorfer)