Sept 29 (Reuters) -ICE cotton futures fell nearly 2% on Friday and were headed for a monthly decline, as a stronger dollar and demand concerns pressured the natural fiber.

* Cotton contract for December CTZ3 fell 1.61 cents, or 1.8%, to 87.1 cents per lb by 1:15 p.m. EDT (1715 GMT). The contract is down 0.8% for the month.

* The dollar index .DXY held steady for the day, and was headed for a monthly and quarterly rise. A stronger dollar makes cotton less attractive to overseas buyers. USD/

* "We hear that Brazil cotton is still selling, but we think that demand is grossly overstated on the planning and that's having its impact. We're not selling US cotton," said Louis Barbera, partner and analyst at VLM Commodities.

* Brazil is on track for record cotton shipments in the 2023/24 commercial year, an exporter group said, citing a large crop and likely record sales in September.

* The U.S. Department of Agriculture's (USDA) weekly export sales report on Thursday showed net sales of 55,300 running bales of cotton for 2023/2024, down 48% from the previous week. The report showed exports of 159,400 running bales, up 6% from the previous week, primarily to China. EXP/COT

* "We expect volatility to increase over the near term, with overall risk to the upside expected to be nearly equal of that to the downside," Louis Rose of Tennessee-based Rose Commodity Group said in a note.

* Elsewhere, Chicago corn, wheat and soybeans edged up as market participants adjusted positions before closely watched U.S. grain stocks figures later in the day. GRA/

Reporting by Sherin Elizabeth Varghese in Bengaluru; Editing by Maju Samuel