Sept 20 (Reuters) -ICE cotton futures eased despite a weaker dollar on Wednesday, as traders held off making large bets after two sessions of gains and ahead of a federal weekly export sales report and the U.S. Federal Reserve policy decision.

* Cotton contract for December CTZ3 fell 0.35 cent, or 0.4%, to 87.17 cents per lb by 12:26 p.m. EDT (1626 GMT).

* "We're probably just getting ready for the Fed announcement and people are just getting positioned for that with dollar being down.. we're also looking at exports tomorrow," said Keith Brown, principal at cotton broker Keith Brown and Co, in Georgia.

* The U.S. Department of Agriculture's (USDA) weekly export sales report is due on Thursday, and investors will watch it seeking clarity on demand from top consumer China.

* "Domestic consumption in China will be down because of horrible economic performance at the moment," said Peter Egli, director of risk management at British merchant Plexus Cotton.

* Last week the report showed net sales of 67,400 running bales (RB) of cotton for 2023/2024, down 21% and exports of 118,200 RB were down 33% from the previous week. EXP/COT

* Oil prices were little changed ahead of U.S. central bank interest rate decision, while the S&P 500 and the Dow gained as Treasury yields pulled back. O/R .N

* Cotton losses came despite a softer dollar, which was down 0.4% against its rivals. A weaker dollar makes cotton less expensive for other currency holders. US/

* Elsewhere, Chicago wheat and soybeans rose, while corn was steady as the markets assessed the start of the U.S. harvest. GRA/

* Meanwhile, Brazil's cotton production was expected to reach 2.9 million tons, down 5.6% from the previous cycle according to the food supply and statistics agency Conab.

Reporting by Rahul Paswan and Sherin Elizabeth Varghese in Bengaluru; Editing by David Gregorio