* Fiber finds support at 10-day moving average
* Prices could climb almost 10 pct higher - Olam executive
* Exchange stocks decline from recent highs
NEW YORK, March 11 (Reuters) - Cotton declined on Monday on profit taking and producer selling following recent gains, but prices found support when they dipped to the 10-day moving average that prompted mills to buy.
The most-active May cotton contract on ICE Futures U.S. slid 0.16 cent, or 0.2 percent, to settle at 86.72 cents per pound.
Cotton prices set a 10-month high on Friday.
The May contract found support on Monday near its 10-day moving average at about 85.75 cents, when buying developed.
"There was some mill buying that came in along the 10-day moving average, which was an appropriate spot," following the recent climb above 88 cents, said Sharon Johnson, cotton specialist at Knight Capital.
Dealers holding long positions liquidated and took profits on Monday following Friday's climb, Johnson said.
While the most-active contract closed down, the December contract, which represents next year's crop, finished up slightly. The U.S. Department of Agriculture's planting intentions report due at the end of the month.
Early forecasts for next year's plantings have pegged cotton as one of the smallest in two decades.
December cotton futures gained 0.29 cent, or 0.3 percent, to settle at 86.88 cents a lb.
The market was still digesting last week's gains, when prices jumped as high as 88.78 cents a lb. Trading volume on Monday was light at about 18,000 contracts, compared with a 30-day average of about 24,000 lots, preliminary Thomson Reuters data showed.
Prices have spiked nearly 15 percent since the start of the year, and may not have peaked. Cotton could rise to 95 cents a lb before the end of the season, another nearly 10 percent above current prices, according to an executive at leading cotton merchant Olam International.
Speculators have helped drive the year-to-date surge, as noncommercial dealers have boosted their bullish bets in cotton futures and options to the highest levels since September 2010.
The price rally has come despite a record global surplus forecasted by the U.S. Department of Agriculture for the end of the crop marketing year in July. More than half of that global stockpile is projected to be held in China, the world's largest consumer, and considered to be largely unavailable to the global marketplace.
Beijing has been building its strategic stockpile since 2011, paying above global prices to support farmers.
U.S. merchants and growers have said that despite the global stockpiles and year-to-date price surge, global demand for fiber has not been deterred.
Exchange stocks have started to inch down from recent highs, ICE data showed. They totaled about 415,000 480-lb bales on Monday, with another 6,000 bales awaiting USDA approval. That is down from more than 436,000 bales earlier this month, the highest levels since June 2010. (Reporting by Chris Prentice; Editing by Bob Burgdorfer)
