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imageNEW YORK: Cotton futures rallied on Wednesday, recovering the previous day's losses, as dry weather across major growing regions of Texas renewed U.S. supply worries.

The most-active July cotton contract on ICE Futures U.S. rose 1.28 cent, or 1.4 percent, to settle at 92.57 cents a lb, while the spot May contract closed up 1.12 cents, or 1.2 percent, at 91.04 cents a lb.

Clear skies over Texas, the top-producing U.S. state, ignited fresh buying as traders worried about crop damage from protracted dry conditions.

Prices rallied in another session of range-bound price gyrations.

"The outlook is there are problems with the cotton crop in the United States this year because there's been such damaging dry weather. Unless there's persistent bearish news, the bulls will be in charge," said Michael Smith, president of T&K Futures and Options in Port Saint Lucie, Florida.

In 2011, concerns over drought damage to Texas crops propelled prices to their highest since the U.S. Civil War.

They set two-year highs last month on worries over tight nearby supplies in the United States, after 2013/14 crop output was below forecast.

The second-month reached a peak of 96.76 cents a lb and the front-month shot as high as 97.35 cents a lb last month.

Even so, concerns have mounted that high prices will continue to crimp demand, and traders awaited weekly U.S. government data due on Thursday.

Last week's U.S. Agriculture Department report showed exports fell for the first time since 2012.

World demand has been driven by voracious buying by China, where a government stockpiling program has driven up local prices and demand for foreign fiber.

China this year is overhauling a policy it implemented in 2011. The country's reserves have ballooned to some 60 percent of global supplies, which are forecast to hit a record of nearly 97 million 480-lb bales by the end of July.

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