* Prices close lower after touching highest since October
* USDA widely expected to lower China output forecast
* China reserve purchases gather pace
NEW YORK, Dec 9 (Reuters) - ICE cotton eased on Monday, consolidating after the previous session's rally as traders squared positions ahead of a monthly U.S. government supply and demand report due on Tuesday.
The most-active March cotton contract on ICE Futures U.S. closed down 0.05 cent, or 0.06 percent, at 80.36 cents a lb.
The benchmark contract inched as high as 80.75 cents, its strongest level since October, and traded in a tight range between support near 79.50-80 cents and resistance at 81-82 cents a lb.
Trading volumes fell from Friday's levels, when activity and prices spiked following strong U.S. economic data.
The Thomson Reuters/Core Commodity CRB index, a benchmark for global commodities markets, advanced.
Global financial markets rose on encouraging economic data from China, the world's biggest consumer of many raw materials.
The U.S. Agriculture Department (USDA) was due to release its monthly crop report on Tuesday. The agency was widely expected to forecast lower output in China, the world's top cotton producer.
Last month, the China National Cotton Reserves Corp estimated that production would drop 12.3 percent to 6.68 million tonnes following early frost and snow.
That compares with USDA's November forecast for China's production at 7.08 million tonnes (32.5 million 480-lb bales).
Dealers also expect the agency to lift projections for U.S. output and exports in the 2013/14 crop year that began Aug. 1.
"People are sidelined until we get into this report, and we've got some commercial selling as we go into the close," said Jobe Moss of MCM Inc in Lubbock, Texas.
"We're evening up after some fund buying on Friday."
Even with an uptick in open interest on Friday, trading volumes have been subdued and total open interest continues to languish near low levels as investors have abandoned commodities in favor of equities.
Speculators hold a small net short position in cotton futures and options after slashing the big bullish stance they held earlier this year.
Official data showed that China's purchases of domestic cotton for state reserves have exceeded 3.5 million tonnes halfway through the season, catching up with the previous year even as total purchases for the year are expected fall.
(Reporting by Chris Prentice; editing by Jim Marshall)