* Second-month prices rally the most in over 3 months
* China stockpiling gathers pace after slow start this season
* 100,000 bales so far tendered against Dec. ICE contract
NEW YORK, Nov 25 (Reuters) - ICE cotton rallied the most since mid-August on Monday, climbing from last week's 10-month low as a recent pickup in China's government stockpiling renewed hopes that strong demand in the world's top consumer will continue.
The most-active March cotton contract on ICE Futures U.S. rose 1.23 cents, or 1.6 percent, to settle at 78.46 cents a lb, recovering the losses seen as the second-month sank to a 10-month low of 76.65 cents a lb on Friday.
Trading volumes were lighter than average ahead of the U.S. Thanksgiving holiday this week.
Trading of cotton futures on ICE would be closed on Thursday. It will resume with a delayed opening on Friday at 8 a.m. (1300 GMT) and an early close at 1 p.m.
Cotton outperformed the broader commodities sector, as sinking energy markets dragged the Thomson Reuters/Core Commodity CRB index to a loss.
The gains came even as the U.S. dollar climbed, creating headwinds for dollar-traded commodities by making them more expensive to holders of other currencies.
China's buying of domestic cotton for strategic state reserves picked up last week as supplies remained tight following weather damage in the world's largest producer and consumer, data from the China Cotton Information Center showed.
Further, the delay of an announcement expected in Beijing on the start of reserve auctions has stoked hopes that the government will allow the country's struggling textile mills to continue to import lower-cost cotton.
"Mills have really been pressing the government. If they can't access the government stockpiles, you've gone from a bearish situation to a bullish one," said Sharon Johnson, a cotton specialist with KCG Futures in Atlanta.
China's inventories have ballooned as a result of the stockpiling program Beijing launched in 2011 that has driven voracious import demand and kept a floor under world prices.
Total market open interest last week plunged to the lowest since January 2012, as speculators abandoned a large bullish bet on fiber contracts and switched to a slight net short stance.
High prices crimped demand at the start of the 2013/14 crop year that began on Aug. 1, taking the wind out of a speculator-driven rally.
The close above Friday's highs was seen as a technically bullish sign of a reversal of cotton's recent slump.
The second-month contract is down 16 percent from August highs near 94 cents a lb and well below key 100- and 200-day moving averages.
The spot December contract closed up 1.75 cents, or 2.3 percent, at 76.96 cents a lb.
About 100,000 bales have so far been tendered for cash delivery against the contract, which is due to expire on Dec. 6, also seen as evidence of demand for U.S. cotton. (Reporting by Chris Prentice; Editing by Kenneth Barry)
