Dec 4 (Reuters) -ICE cotton futures edged down on Monday as strength in the dollar and a downbeat sentiment across wider equity and commodity markets weighed on demand for the natural fiber.

* The second-month March contract CTc2 fell 0.31 cent, or 0.4%, at 79.11 cents per lb by 12:28 p.m. ET (1728 GMT).

* The U.S. dollar rose .DXY 0.4%, making the natural fiber less appealing to overseas buyers. USD/

* Some pressure from the external markets, which were also trading lower, eventually spilled over into cotton said Bailey Thomen, cotton risk management consultant at StoneX Group said.

* Oil prices extended losses, weighed down by investor scepticism about the latest OPEC+ supply-cut deal and uncertainty surrounding global fuel demand.

* Lower oil prices tend to subdue sentiment in cotton markets since they make polyester, a cotton substitute, less expensive. O/R

* U.S. stocks fell on caution ahead of a slew of economic data due this week that will likely put to test the narrative of the Federal Reserve cutting interest rates by early next year. .N

* "There's less demand overall coming out of China because they were able to meet a lot of their existing needs through the reserve auction that just concluded a little while ago," said Thomen.

* "And lately some of the buying activity out of China has been mostly coming from the reserve."

* In the grain market, Chicago soybean prices fell following forecasts for crop-friendly rain this week in drought-stricken Brazil. Corn prices were also down, while wheat rose on export hopes after Russian prices rose.

Reporting by Sherin Elizabeth Varghese in Bengaluru; Editing by Shailesh Kuber