* Investors still worried by India, China sale plan
* Prices down 5 pct on week, still up 17 pct year-to-date
* Weekly exports drop 39 pct - USDA data
NEW YORK, March 21 (Reuters) - Cotton futures fell to a one-week low on Thursday and were heading for the biggest weekly decline since October as speculators again took profits from this year's rally, a day after the world's top two producers said they were preparing to sell fiber from their stockpiles.
Last Friday, cotton futures hit their highest level in a year. On Wednesday, prices slid after Reuters reported that China and India plan to sell fiber from their stockpiles in to deflate domestic prices and curb rising costs for their mills.
"Those stories took some of the air out of this rally," said Jobe Moss, a broker with MCM Inc. in Lubbock, Texas.
Prices fell further on Thursday, down 1.3 percent to below 88 cents, as profit-taking continued and investors fretted about waning demand for cotton from the United States, the world's No. 1 exporter.
Weekly U.S. export data showing a 39-percent drop in sales to 114,100 running bales spurred selling, although some traders said they were relieved buyers had not canceled shipments.
Last Friday, a day after the period covered by the data, prices hit one-year highs just under 94 cents.
"Prices ran too far and too fast and ran into some resistance on the demand side, enough to stall the market's rally and start the speculative liquidation," said a U.S. broker.
On Thursday, the most-active May cotton contract on ICE Futures U.S. settled at 88.20 cents per lb, dropping 0.9 cent or 1.01 percent. Prices were on track to drop 5 percent, their weakest weekly performance since the end of October.
Trading may remain cautious ahead of the U.S. Department of Agriculture's much-anticipated planting survey due for release next Thursday. The poll of U.S. farmers will give investors and merchants their first glimpse of growers' intentions for spring planting which kicks off next month.
Even after this week's drop, cotton is up 17 percent since the start of the year and still the world's best performing commodity. That is a stark turnaround from double-digit percentage losses over the previous two years.
That means U.S. farmers may decide to plant more cotton this year than market watchers had expected, while the sticker shock from high prices could hurt fabric makers' appetite for natural fiber.
"We're stimulating production by driving prices up to 90 cents, and then we'll ration back consumption," said Moss. (Reporting by Josephine Mason; Additional reporting by Christine Prentice; Editing by David Gregorio)