NEW YORK, Feb 23 (Reuters) - U.S. cotton futures finished
Wednesday with hefty losses, but nowhere near the 7-cent
downside limit reached in the prior two sessions as speculative
spread selling seemed to have lost steam, brokers said.

Risk aversion that pressured cotton a day earlier also
eased and speculators refocused on concerns over tight
supplies, which had helped run fiber to records above $2 a lb.

'Supply and demand seems to be trumping the fear factor,'
said Keith Brown of brokerage Keith Brown and Co in Moultrie,
Georgia.

March cotton finished down 1.38 cents, or 0.73
percent, at $1.8656 per lb, but fell as low as $1.8090.

March's open interest has ebbed to 1,100 contracts, with
May futures carrying open interest of 18,096 lots.

New benchmark May cotton on ICE Futures U.S. settled
with losses of 3.7 cents, or 1.97 percent, at $1.8423. The
session low was $1.8093 a lb.

Some prices tumbled by their 7-cent downside limit in early
business, but eventually buyers came back in at the lows,
cutting losses to levels that sparked some two-way flow.

Brown said of the smaller declines: 'Everyone's exhausted.'
He noted that contracts dated from December, when the new crop
is harvested, onward ended in positive territory.

An unraveling of nearby spreads left those contracts lower,
but for the new crop underlying the December contract, Brown
said: 'There hasn't been a seed put in the ground, so it's kind
of hard to kill it (the contract).'

Last week, nearby contracts hit records well above $2 a lb
in a short-cover squeeze heading into the March delivery
period.

Once the last short positions were covered on Thursday
night, any speculators left at the top of the market ran for
the exits at the same time, driving prices back down by the
7-cent limit for two days in a row.

Despite that two-day slide, prices have been on an uptrend
since last August, spurred by tight global supplies.

No deliveries have been posted against the March contract
despite the rush to buy front-month futures, indicating few
supplies on hand, brokers said.

Analysts and brokers said they expected shortages to
continue amid strong global demand and short supplies, which
eventually may push prices back to record levels.