* Cotton surges to highest price since May 2012

* U.S. weekly export numbers up 5 percent vs previous week

* Rising prices spur speculative buying, merchant says

By Chris Prentice

NEW YORK, Feb 28 (Reuters) - Cotton spiked to a nine-month high on Thursday as strong weekly U.S. export data indicated that recently high prices have not deterred demand and bullish speculators have been drawn back to the market.

The most-active May cotton contract on ICE Futures U.S. rose 0.91 cent, or 1.1 percent, to settle at 85.29 cents per pound, after earlier surging as high as 85.97 cents a lb - its highest since May 2012.

U.S. export sales showed a decline from the previous week, but the 152,900 running bales sold in the week ended Feb. 21 were 5 percent above the prior four-week average, according to the U.S. Department of Agriculture.

Even more significant was that foreign buying continued in the face of last week's highs.

"The export numbers were terrific, especially because they occurred during the timeframe when we pushed to those previous highs," said Knight Capital's cotton specialist Sharon Johnson.

Cotton touched as high as 85.24 cents a lb on Feb. 20, which had been the highest level since May 2012 until the surge on Thursday. Last week's gains proved unsustainable, however, and cotton fell some 4 percent within five sessions.

But fiber found support around the 80- to 81-cent level, as mills took market dips as opportunities to buy. Prices rallied and registered their largest daily gain in six months on Wednesday, spurred by the mill buying and then return of investors in late-day trading.

After trading lower early in the session on Thursday, cotton reversed direction as volumes increased. The climb triggered automatic buying and lured speculators back into the market.

"Once we got above the 84.50 cents a lb level, we hit more buy stops and we didn't look back," Johnson said, referring to the surge.

Speculators had been seen taking profits after prices punched above 85 cents last week, but the strong buying that came in from mills at lower levels seemed to renew optimism from noncommercial investors.

"We have a constructive technical picture that is inviting more spec buying," said Peter Egli, director of risk management for Plexus Cotton Ltd, a British-based medium-sized merchant.

Fiber has risen nearly 9.7 percent in the first two months of the year, as noncommercial dealers have boosted their net long position in cotton futures and options to a 2-1/2-year high. (Reporting by Chris Prentice, editing by G Crosse)