Cotton prices plummeted from a record, dropping the most allowed by ICE Futures U.S., as a rebound in the dollar eroded the investment appeal of commodities.

The greenback rose from a 10-month low against a basket of major currencies, and the Thomson Reuters/Jefferies CRB Index of 19 raw materials dropped after reaching a two-year high yesterday. Federal Reserve Chairman Ben S. Bernanke said additional monetary stimulus may be warranted because inflation is low and unemployment is high.

"Cotton is way too high," said Sid Love, the president of Joe Kropf & Sid Love Consulting Services LLC in Overland Park, Kansas. People were buying cotton "because of the weakness of the dollar," he said.

Cotton for December delivery dropped by the exchange’s 5- cent limit, or 4.4 percent, to settle at $1.0987 a pound at 2:30 p.m. in New York. Earlier, the price climbed to $1.198, the highest level ever. The fiber gained 2.5 percent this week and 45 percent in 2010.

“While a lot of folks may say the top is in, the jury is still out,” Mike Stevens, an independent trader in Mandeville, Louisiana said today in an e-mailed note.

Prices soared after demand in China, the world’s biggest consumer, climbed, while inventories plunged in the U.S., the largest exporter.

China is forecast to import 13 million bales in the season that began Aug. 1, up 19 percent from last year, the U.S. Department of Agriculture said Oct. 8. A bale weighs 480 pounds, or 218 kilograms.

As of yesterday, cotton stockpiles held at warehouses monitored by ICE have plunged 99 percent since June 1.

“Prices are likely to stay elevated over $1 well into 2011,” said Gary Raines, an economist at FCStone Fibers & Textiles in Nashville, Tennessee.