* USDA supply report gives market boost
* December fails at resistance, gains pared

NEW YORK, July 11 (Reuters) - Cotton futures finished with small gains
Wednesday and below session highs after an initial flurry of speculative buying
inspired by a government crop report faded, and investor liquidation hit late in
the day, brokers said.

The benchmark December cotton contract on ICE Futures U.S. rose 0.30
cent to finish at 71.02 cents per lb, dealing from 70.28 to 72.45 cents.
Volume traded on Wednesday stood at around 18,300 lots, almost 50 percent
below the 30-day norm, Thomson Reuters data showed.

Jobe Moss, an analyst for brokers and merchants MCM Inc. in Lubbock, Texas,
said cotton jumped in line with a rally in the grains complex after the U.S.
Agriculture Department forecast a deep cut to the U.S. corn yields due to the
worst Midwest drought in a quarter century.

Cotton also got a boost when USDA slashed its estimate of 2012/13 world
cotton ending stocks to 72.39 million (480-lb) bales from the record 74.51
million bales in its June supply data.

China's ending stocks was projected at 31.8 million bales and accounted for
nearly 44 percent of the total.

"I think (investors) saw the grain market shoot through the roof," Moss
said, adding the world stocks number added to the early bullish mood.
But the December contract failed to race past topside resistance at 72.50/60
cents.

"That was it," Moss said, and the market stumbled on investor liquidation.
Traders are now waiting for Thursday's USDA weekly export sales data to
gauge the level of U.S. cotton exports near the end of the 2011/12 marketing
year (August/July).

Open interest an indicator of investor interest, rose for the third straight
session to 167,494 lots as of July 10, the exchange said.

Volume traded on Tuesday stood at 10,511 lots, ICE Futures U.S. data showed.