Aug 30 (Reuters) -ICE cotton futures dipped on Friday, pressured by a strong dollar and weakness in crude oil, but prices were still set for their first monthly gain since January on expectations of a smaller crop.

* Cotton contracts for December CTZ4 fell 0.21 cent, or 0.3%, at 69.71 cents per lb at 11:44 a.m. EDT (1544 GMT).

* "Cotton is down on lack of liquidity amid negative external factors, with the U.S. dollar index rising and crude oil prices selling off," said Valentin Olah, risk management consultant at StoneX Group.

* The U.S. dollar gained after data showed a key inflation measure came in line with forecasts, while personal spending and income increased, reinforcing expectations that the Federal Reserve will likely cut interest rates by a smaller 25 basis points next month. USD/

* Oil prices weakened and were on track for a weekly drop, hurt by concerns about demand and the prospect of more supply from OPEC+, although Libyan output disruptions limited the decline. O/R

* Lower crude prices make polyester, an alternative to cotton, less expensive.

* The contract is set to break a five-month losing streak and has risen 0.9% so far this month after the USDA in its August World Agriculture Supply and Demand Estimates (WASDE) report lowered U.S. and global estimates for production and ending stocks.

* "India and Pakistan continue to deal with the uncertainty of rains and patchy flooding... short-term, prices have a bullish bias, but trading sideways makes sense mid-term," said Olah.

* Garment factories in Bangladesh, one of the world's biggest clothing production hubs, are struggling to complete orders on time as flooding disrupts their cotton supplies - exacerbating a backlog caused by recent political turmoil.

* The U.S. Department of Agriculture's weekly report showed exports of cotton running bales fell 14% to 144,200 from a week ago, while net sales of upland cotton for 2024/2025 rose 45% to 135,200. EXP/COT

Reporting by Anmol Choubey in Bengaluru