Oct. 19 (Bloomberg) -- Cotton futures fell as a rallying dollar eroded the investment appeal of some commodities and as the harvest accelerated in the U.S., the world’s largest exporter.

The dollar gained as much as 1.8 percent against a basket of six currencies after China, the biggest cotton user, raised interest rates for the first time since 2007. Oil and gold prices plunged, sending the Standard & Poor’s GSCI Index of 24 commodities to its biggest drop since June. In the week ended Oct. 17, the U.S. harvest was 41 percent complete, up from 33 percent a week earlier, government data show.

The dollar rally might lead to a “pretty good sell-off in a lot of commodities,” said Fain Shaffer, the president of Infinity Trading Corp., a commodity brokerage in Medford, Oregon. “On top of that, we’re going into the heart of harvest for India and the U.S. Fresh supply’s coming to the market.”

Cotton for December delivery fell 3.11 cents, or 2.7 percent, to settle at $1.1026 a pound at 2:30 p.m. on ICE Futures U.S. in New York. The fiber has advanced 46 percent in 2010.

On Oct. 15, cotton dropped by the exchange’s limit of 5 cents after climbing to $1.198, the highest level since the commodity started trading 140 years ago.

Prices may drop over the next three months as harvests gather pace in the U.S. and India, the top suppliers, helping ease a global deficit, according to Cotton Corp. of India.

Drop to $1?

Futures may decline to $1 to $1.05 as India resumes exports and Pakistan and Brazil gather new crops, Subhash Grover, the managing director of the biggest state-owned buyer in India, said in a telephone interview from Mumbai.