Nov. 7 (Bloomberg) -- Cotton futures fell to a two-week low on speculation that demand will shrink because of a faltering global economy.

Morgan Stanley advised investors to sell European stocks as politicians respond “inadequately” to the fiscal crisis and growth weakens. Italian Prime Minister Silvio BerlusconiΆs majority is unraveling after contagion from EuropeΆs debt crisis pushed the countryΆs borrowing costs to euro-era records. Last week, the dollar jumped 2.5 percent against a basket of major currencies.

“ThereΆs a continued lack of demand and a stronger dollar” eroding the appeal of raw materials, Andy Ryan, a senior risk-management consultant at INTL FCStone Inc. in Nashville, Tennessee, said in a telephone interview. “Mills and garment makers are running inventories down rather than buying, because they donΆt want to get caught with excess inventory.”

Cotton for December delivery fell 2 percent to settle at 96.76 cents a pound at 2:46 p.m. on ICE Futures U.S. in New York. Earlier, the price touched 96.51 cents, the lowest for a most-active contract since Oct. 21. The fiber has tumbled 56 percent from a record $2.197 a pound on March 7.

Output from India, the worldΆs second-biggest producer, may climb to 6 million metric tons in the year ending July 31 from 5.5 million a year earlier, Terry Townsend, the executive director of the International Cotton Advisory Committee, said in Mumbai. Exports may rise to 1.4 million tons from 1.1 million tons, he said.

China is the largest producer, and the U.S. is the leading exporter.