U.S. cotton ends 5-day losing streak on short-covering

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* Prices recover after hitting two-month low

* Spec selling reflected in rising open interest – traders

NEW YORK, Sept 27 (Reuters) – Cotton broke a five-day losing streak on Thursday on technical buying and short covering after fiber prices hit two-month lows.

After flirting with the psychologically key 70-cent mark and hitting its lowest level since Aug. 2 in morning trade, prices bounced back garnering strength from a recovery in the euro.

New York cotton for December delivery settled up 0.51 cent, or 0.72 percent, at 71.53 cents per lb on ICE Futures U.S.

“This was a short covering rally,” said floor trader Gene Libertucci.

Volumes were healthier than recent averages at 16,635 lots but still almost a quarter below the 250-day moving average, with many investors staying on the sidelines waiting to see if prices test 70 cents which traders said could unleash a fresh round of spec selling.

Traders expect the gains to be brief before selling resumes as the Northern Hemisphere harvest begins.

“I think it’ll break the 70-cent barrier,” said Libertucci.

Speculative investors have been offloading their long positions in recent weeks in the face of weakening supply-and-demand fundamentals. Traders have attributed the rise in open interest – the number of outstanding contracts – which was just over 186,000 lots on Wednesday, its highest level since mid-June, to fresh shorts being placed.

Prices were also helped by a strong euro that bounced off two-week lows after Spain unveiled a 2013 budget viewed as a step in the right direction in helping to resolve the region’s debt crisis.

Cotton wasn’t able to keep up with a buoyant broader commodity market, fueled by oil and gold gains. The 19-commodity Thomson Reuters-Jefferies CRB index was up 1.2 percent.

The market also digested weekly export data which showed a drop of a third in sales to 130,500 running bales from the previous week, with just under 55,000 bales heading for China.

(Reporting by Josephine Mason)

Source: http://www.reuters.com/article/2012/09/27/markets-cotton-idUSL1E8KRG6Q20120927

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