Cotton futures gain as dry Texas skies stoke U.S. crop worries

Cotton futures gain as dry Texas skies stoke U.S. crop worries

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* More rains needed to battle subsoil dryness -analyst

* Fiber inches further from technically oversold

* U.S. government data shows speculators again cut bullish stance

NEW YORK, June 2 (Reuters) - ICE cotton rose on Monday as expectations of dry weather in Texas, the top-producing U.S. state, stoked worries over upcoming supplies and offset pressure from the rolling of closely watched index funds.

The most-active July cotton contract on ICE Futures U.S. edged up 0.21 cent, or 0.2 percent, to settle at 86.48 cents a lb.

The December contract, which represents cotton in the 2014/15 crop year that begins on Aug. 1, closed up 0.59 cent, or 0.7 percent, at 78.06 cents a lb.

Fiber was supported by expectations of dry weather in key growing regions of Texas, where a multiyear drought has plagued farmers and slashed crops.

The gains were "directly related to the weather forecasts. It's going to be dry, and while the soil moisture is OK for planting, we need to see more to grow the crop," said Sterling Smith, a futures specialist with Citigroup in Chicago.

Volumes picked up as traders rolled positions out from the July contract ahead of its July 9 expiry.

It was the spot month's third straight up day after having been under pressure from long liquidation in recent weeks that sent prices to a four-month low of 83.86 cents a lb on Wednesday.

The three days of gains have pulled the front-month from technical oversold territory. The contract's 14-day relative strength index was 36.8 on Monday, up from as low as 25.7 last Wednesday.

Weekly U.S. government on Friday showed that speculators slashed their net long position to a five-month low in the week to May 27.

Exchange inventories slipped to about 417,000 bales on Friday from 417,800 previously, but still near the highest levels since July, ICE data showed on Monday.

(Reporting by Chris Prentice; Editing by Lisa Shumaker)

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