-- Benchmark December recovers previous day's losses

-- Exchange stocks rise to 420,728 bales

Benchmark US cotton futures rallied on Wednesday in heavy trade on the coattails of the July contract as it headed toward delivery period and on expectations of nearby demand. The most-active December cotton contract on ICE Futures US closed up 0.87 cent, or 1.1 percent, at 77.19 cents a lb, recovering all of the previous day's losses that pressured the contract to a 4-1/2-month-low.

The July contract hit a one-month high of 91.43 cents a lb and settled up 1.09 cents, or 1.2 percent, at 91.15 cents a lb in a fifth straight daily gain. Spread-related gyrations again lifted the premium of the front-month July over the December contract. It rose to 13.96 cents a lb from 13.74 cents a lb on Tuesday. That was the highest such premium since 2011. Short-covering has helped propel the July contract higher as it heads toward expiry, dealers said.

"Someone got caught. Merchants have to cover their short positions and get out," said Nick Gentile, managing partner at NickJen Capital Management and Consultants in New York. Expectations have risen that there may be a large delivery against the July contract, which enters its delivery notice period next week and expires on July 9, as supplies tighten heading to the end of the 2013/14 crop year that runs through end-July.

Demand for US cotton has beat expectations this year, straining supplies in the world's top exporter after farmers grew their smallest crop in four years. Even so, exchange stocks rose to 420,728 bales on Monday from 416,692 previously and climbing toward May's 10-month highs, ICE data compiled by Reuters showed. Total market open interest fell sharply to 173,633 lots on Monday, down from 179,931 lots on Friday to the lowest level since late April.