* Technical selling seen after Tuesday's rally to 5-month high

* China says cotton subsidies to reflect international prices

* Physical business not enough to support high prices -trader

NEW YORK, Jan 22 (Reuters) - ICE cotton eased on Wednesday after rallying to a five-month high in the previous session, as technically overbought market conditions triggered profit-taking.

Traders now switch their focus back to demand worries after China, the world's No. 1 buyer, said earlier this week it planned to end its stockpiling program.

The benchmark March cotton contract on ICE Futures U.S. closed down 0.29 cent at 87.84 cents a lb.

On Tuesday, worries over tight U.S. supplies sent the March contract 1.5 percent higher to 88.43 cents a lb, its strongest level since August.

Tuesday's rally pushed the spot contract into the technically overbought territory for the first time in more than 30 days, with its 14-day relative strength index at 73.

Louis Rose, co-founder of Risk Analytics, cited technical selling and ample supplies from new ICE certified stocks for cotton's drop on Wednesday.

"At some point they are going to take (profit) and there will not be enough physical business to support prices near 88.00 a lb," Rose said.

China will consider domestic and international prices when setting subsidies for cotton and soy farmers as it moves away from a controversial stockpiling scheme, a top official said on Wednesday.

Earlier in the week, the market shrugged off Sunday's widely expected announcement that Beijing would scrap its stockpiling program this year.

Beijing launched the stockpiling program in 2011, paying above global prices to support farmers and keeping a floor under the world market, even as global inventories ballooned.

China is expected to hold 60 percent of record global inventories of 97.6 million bales by the end of the 2013/14 crop year at the end of July.

Even so, spot cotton prices have surged about 20 percent from a November low of 73.79 cents a lb as U.S. export sales have picked up and as speculators have reestablished a bullish position in cotton contracts on an improving outlook.

Jordan Lea, chairman and co-owner of Eastern Trading in South Carolina, said that Wednesday's pullback was not triggered by fundamental reasons but rather speculators selling in an overbought market. (Reporting by Frank Tang; Editing by Phil Berlowitz)