The most-active May cotton contract on ICE Futures US settled up 0.94 cent, or 1.1 percent, at 84.13 cents per pound, after earlier spiking to 84.87 cents, the highest price since May 2012.

After two weeks of declining prices, fiber prices jumped amid heavy trading volume on Tuesday. Chinese buyers returned to the market following the new year, and a speculative sell-off as the March cotton contract approached expiration dried up.

"With China being back in the saddle, it encouraged traders to come back in. We got enough of the weak longs out of the market that the selling wasn't nearly as strong as it was last week," said Knight Capital cotton specialist Sharon Johnson.

Speculators raised their net long position in cotton futures and options to the biggest since September 2010 during the five weeks to Feb. 12.

As the March futures contract nears expiration, with the first date of delivery set for Feb. 22, any long positions against the March contract need to be rolled forward unless buyers want that cotton delivered.

Last week, May superseded March as the most-active contract. Open interest in the spot contract totaled about 20,000 contracts on Tuesday, compared with open interest of about 127,000 contracts in the benchmark May contract, Thomson Reuters data showed.

The May-March spread increased for a sixth straight session, pushing the premium of the second-month over the spot contract to 1.95 cents a lb, its highest level in nine months.

A stark rise in certified stock levels has been the primary driver, analysts said. Exchange stocks reached more than 258,000 480-lb bales on Monday, with another almost 69,000 bales awaiting review by the US Department of Agriculture, according to ICE data.

That represented the most certified stocks since May 2011 and a marked increase from 95,000 bales registered at the start of the year and about 8,000 listed in October 2012.

Fiber also derived support on Tuesday from strong soybean prices, as US bean prices jumped 3 percent. Surging bean and corn prices support cotton as they may prompt US farmers to turn away from fiber in favor of more lucrative crops and thus decrease cotton supplies.

Even after two straight weeks of losses, cotton prices have jumped about 10 percent since the start of the year with increases to nine-month highs coming despite forecasts of record global surpluses by the end of the crop year.

ICE cotton volumes were heavy on Tuesday with more than 37,000 lots traded, compared with a 250-day average of about 24,000, according to preliminary Thomson Reuters data.

Copyright Reuters, 2013