* Weak outside markets put cotton on defensive
* Cotton sags after topside targets hit

NEW YORK, Feb 29 (Reuters) - Cotton futures settled
lower Wednesday on investor liquidation after the market stalled
in its advance while the firm dollar and weak outside markets
undermined fiber contracts, analysts said.
Benchmark May cotton on ICE Futures U.S. dropped 1.80
cents or nearly 2 percent to finish at 90.44 cents per lb,
trading from 89.88 to 92.30 cents. The market was well supported
above last week's low near 89 cents.
Volume traded Tuesday was around 16,300 lots, preliminary
Thomson Reuters data showed.
Mike Stevens, an independent analyst in Louisiana, said once
May failed to race past the topside targets of 93-94 cents,
"cotton turned around and went the other way."
"We reached the upside technical points and did not go
anywhere," he said, adding this prompted speculators to bail
just as fast as they bought up the market.
U.S. stocks reversed early gains after bearish remarks on
the U.S. economy, in particular the job market, by Federal
Reserve Chairman Ben Bernanke.
Analysts said cotton participants will be looking closely at
the U.S. Agriculture Department's weekly export sales report on
Thursday to gauge if the demand which has supported the market
near 90 cents, basis May, will be sustained going forward.
Last week, the U.S. Agriculture Department showed weekly
cotton export sales of 185,200 running bales (RBs, 500-lbs
each). Cotton export shipments were robust at 326,200 RBs, which
exceeds the average amount needed to meet USDA's current
projections for the 2011/12 crop year.
After that report, the market will turn its focus to the
next USDA monthly supply/demand report in March. The end of that
month will also see the release of the annual potential
plantings report.
Open interest in cotton, an indicator of investor exposure,
rose slightly to 171,632 lots as of Feb. 28 from the previous
session's 171,132 lots, ICE Futures U.S. data showed.