* Volumes low; institutional investors on sidelines
* Brokers eye dry weather in India, Texas

NEW YORK, August 1 (Reuters) - Cotton futures dropped more
than 1 percent on Wednesday, closing near intraday lows after
the U.S. Federal Reserve dashed hopes of stimulus measures and
warned of deterioration in the world's largest economy.
The market was also dragged lower by the grain market as the
blistering rally in soybeans faltered after forecasts of rain in
the drought-ridden crop belt.
The benchmark December cotton contract on ICE Futures
U.S. settled at 70.56 cents per lb, down 1.09 percent from
Tuesday, just off its intraday low of 70.53 cents hit after the
FOMC statement which sent the euro lower against the dollar and
raised concerns about demand in the clothing and textile sector.
The Fed stopped short of offering new monetary stimulus even
as it signaled further bond buys could be in the offing and
cautioned that the U.S. economy has lost momentum this year.
Volumes were healthier than the previous two days at above
11,500 contracts, but still well below the year-to-date daily
average as institutional and fund money stayed on the sidelines.
Only 8,000 contracts changed hands on Monday, a seven-month
low.
"I can't make a living on this volume. We need at least
20,000 a day," said one broker.
The lack of liquidity kept prices in a narrow range. Traders
said institutional investors were watching the grains market as
crops withered in the worst U.S. drought in decades.
"There's nothing going on. It's up a day and down a day,"
said Mike Stevens, an independent cotton analyst based in
Mandeville, Louisiana.
While some traders say prices could test June's low of 65
cents, others see conditions ripening for a jump, particularly
if the U.S. Department of Agriculture cuts its 2012/13 crop
forecast in its much-anticipated monthly report on Aug. 10.
Brokers and traders are already reining in estimates for
Texas, the largest producing U.S. state, where a prolonged dry
spell has hit crops even as growers are still trying to recover
from last year's drought - the worst in a century.
Eyes are on India and Pakistan too amid concerns about the
delayed monsoon.
The market shrugged off another drop in exchange certified
stocks taking the total to just under 37,000 bales, a low last
seen in November. Another 7,480 bales were decertified, adding
to the large amount of fibers that have been drawn down in
recent weeks.