* Drop below 80 cents lured back buyers
* Prices have retraced ground lost in 9-day selloff
* July cotton pierces long-term moving averages
NEW YORK, June 4 (Reuters) - ICE cotton rallied in hefty
volume for a second straight day on Tuesday as traders ran to
cover short positions and foreign mills returned to buy fiber
after the market's longest selloff in years.
Prices rallied almost 5 percent to as high as 86.38 cents
per lb, the loftiest in just over two weeks, on pent-up physical
demand after prices sank to four-month lows below 80 cents on
Friday, the end of a nine-day losing streak.
"U.S. prices got competitive enough to sponsor buying from
overseas, and it looks like we're seeing short-covering on top
of the new buying," said Sharon Johnson, a cotton specialist
with Knight Futures.
The most-active July cotton contract on ICE Futures U.S.
rose 2.2 cents, or 2.7 percent, to settle at 84.56 cents
per lb.
A whopping 50,500 lots changed hands, more than double its
30- and 250-day averages. Volumes will remain high until July
options expiry on June 14, traders say.
The two-day rally means prices have recovered almost all the
ground lost during nine days in May.
The 80-cent level was considered "magical" for luring back
buyers. Traders can buy ICE cotton for July delivery and sell to
mills in China, the world's No. 1 textile market, at as high as
$1.30 per lb.
That is still well below the $1.40 per lb price tag for the
state reserve's massive stockpile.
"The drop in July did some magical things. It allowed the
Chinese arbitrage to be played," a U.S. broker said.
On Tuesday, technical buying accelerated after prices
pierced short- and long-term moving averages. Traders also noted
that July's narrowing spread with December, which
represents the 2013/14 crop, may spur further buying by foreign
mills.
The July-December spread came in to 0.88 cent per lb, from
close to 2 cents on Monday.
Fiber continued to outperform the broader commodities market
, as strength in Brent crude and base metal prices
offset weaker precious metals.