* Fiber reaches highest since May 2012 after U.S. job report
* Climbing prices meet technical resistance
* USDA increases forecast for global demand
NEW YORK, March 8 (Reuters) - Cotton gained on Friday, reaching a 10-month high on healthy U.S. employment data, while a U.S. Department of Agriculture report that forecast stronger global demand also supported prices.
The most-active May cotton contract on ICE Futures U.S. rose 0.38 cent, or 0.4 percent, to settle at 86.88 cents per pound.
Prices spiked in early trading as the jobs report ignited hopes for strong consumer spending, sending global stocks up sharply and boosting the dollar.
Climbing cotton prices triggered automatic buying and sent prices surging to as high as 88.78 cents a lb, the loftiest level since May 4, 2012.
While cotton gained on the day, the early rally proved unsustainable. The USDA's monthly crop report, though seen as "friendly", failed to surprise the market and push prices past areas of technical resistance to extend gains.
"The 89/90-cent level is hard resistance, from the highs we made back early last May. Plus, we were anticipating a friendly report," Knight Capital cotton specialist Sharon Johnson said.
Trading was volatile following the crop report, even though the department increased its forecast for demand and reduced its expectations for a global surplus.
Cotton has been technically overbought, with a 14-day relative strength index above 80, since the end of January.
Prices rose 0.6 percent from last Friday's close, marking a second weekly gain.
Speculators have helped drive a price surge of nearly 15 percent since the start of the year, and merchants have pointed to solid physical demand underpinning recent gains.
Still, a steep global surplus is expected by the end of the 2012/13 crop year. Prices surged in early 2011 to their highest since the U.S. Civil War. They have since tumbled, with lower-priced, manmade alternatives eroding demand, and global stockpiles growing. (Reporting by Chris Prentice; Editing by Dale Hudson)
