(Reuters) - Cotton prices in India are likely to rise this week on higher buying by yarn makers, lower supplies in the spot market and on deficient rains in key growing areas, which could impact sowing of the fibre.

"Yarn makers are buying in huge quantity as the demand in overseas market is very good, and this is pushing up prices of cotton in the local market," said Arunbhai Dalal, a trader based in the western state of Gujarat, the country's biggest producer.

On Monday, the most-traded Shankar-6 variety closed 300 rupees higher at 34,700 rupees per candy, data from the Cotton Association of India showed.

Prices could rise by nearly 1,000 rupees a candy this week, Dalal said.

Cotton supplies in spot markets across the country are falling as the arrival season has come to an end, traders said.

Most farmers in India plant cotton in June-July with the arrival of monsoon rains and begin harvesting after October-November.

The country has so far received 25 percent lower rainfall than normal since the beginning of the monsoon season on June 1, weather department data showed.

Rains in the cotton growing western and northern regions have been patchy, impacting the planting of the fibre.

Cotton cultivation in India, the world's second-biggest producer, is likely to fall in 2012/13 from last year, as farmers switch to competing crops like soybeans for better returns.

India's cotton year runs from October to September.

India's cotton output in the 2011/12 season ending on September rose to 34.7 million bales of 170 kg each, according to an estimate by the Cotton Advisory Board.

(1 candy = 356 kg)