* Fears rise about export ban in India due to weak monsoon
rains
* Market awaits key USDA supply report Friday

NEW YORK, Aug 6 (Reuters) - Cotton futures rose for a second
day on Monday, hitting two-and-a-half month highs, on mounting
concerns about possible export restrictions out of India, the
world's second-largest producer.
"This is uncertainty over India's situation which is
twofold, how much (production) are they losing and will there be
an embargo (on exports)," said a Georgia-based broker.
The benchmark December cotton contract on ICE Futures
U.S. jumped 2.4 percent to settle at 75.72 cents per lb. That
was just 0.07 cent shy of its intraday high and its highest
level since May 21, according to Thomson Reuters data.
The two days of gains came as a relief to traders who
watched the fiber contract trade within a one day's limit move
throughout July due to an absence of speculative players and
weighed down by lackluster demand and plentiful supplies.
Sentiment has started to turn in favor of higher prices in
recent days after the Indian government warned that the delayed
monsoon will likely curb plantings and hurt output in the
2012/13 season.
Some also attributed the gains to short-covering ahead of
the much-anticipated U.S. Agriculture Department's monthly
supply/demand report on Friday, the first for the 2012/13
season.
Speculators turned net short in cotton for the first time
since mid-June, in the week to July 31, U.S. Commodity Futures
Trading Commission data showed on Friday.
The U.S. government's forecast will be all the more dramatic
due to the freak weather that has gripped key-producing nations.
Traders hope to gleen some insight to the health of the
global supply, with most expecting the authorities to cut their
2012/13 supply forecast.
With soybean prices soaring due to the worst drought in over
50 years that has scorched the U.S. corn belt, some farmers in
the southern hemisphere are mulling switching into the more
profitable grains and out of fibers, market participants say.
Their next planting season will be in November.
The dry spell in Texas is also expected to hamper this
year's harvest, traders have cautioned.
Even so, the bears note there are plenty of stocks
Cotton bucked the downward trend in the grains market on
Monday after weekend showers in the U.S. Midwest brought some
mild relief to soybean crops.
It drew some strength though from the euro which gained
against the dollar on hopes the European Central Bank will take
action to lower borrowing costs for Spain and Italy.