* U.S. jobs number powers strong rally in cotton
* Market awaits key USDA supply report next week

NEW YORK, Aug 3 (Reuters) - Cotton futures settled at a
2-1/2 month high on Friday on speculative fund buying inspired
by a report that showed U.S. employers hiked hiring in July by
the most in five months, analysts said.

The Labor Department said non-farm payrolls rose by 163,000
last month, breaking three straight months of job gains under
100,000.

Oil and financial markets climbed on the news
, which in turn stoked cotton's advance.

"The direction for the next couple (of days and weeks) is
possibly up," said Jobe Moss, a dealer at analyst and brokers
MCM Inc in Lubbock, Texas.

The benchmark December cotton contract on ICE Futures
U.S. jumped 2.97 cents or by 4.18 percent to finish at 73.94
cents per lb, dealing from 70.74 to up the 3.00-cent daily limit
at 73.97 cents.

It was the loftiest settlement for the benchmark contract
since June 19, according to Thomson Reuters data.

For the week, the market was up almost 3.5 percent.

Volume traded on Friday amounted to around 23,800 lots,
about a third below the 30-day norm, Thomson Reuters data said.

Cotton also had some short-covering ahead of the U.S.
Agriculture Department's monthly supply/demand report on August
10, the first for the 2012/13 season, traders said.

Higher grain prices also inspired fiber contracts to
move up, they said.

Technically, the market is aimed at the 100-day moving
average just above 78 cents and speculators could drive futures
toward that area next week.

Open interest, an indicator of investor interest in a
market, went up for the fourth session in a row to stand at
178,830 lots as of August 2, the highest it has been since June
19, ICE Futures U.S. data showed.