NEW YORK, Aug 26 (Reuters) - Cotton futures settled higher Friday on
investor buying to end a 3-day losing streak as firmer outside markets gave
fiber contracts a lift, analysts said.

World stocks surged and the dollar fell after Federal Reserve chairman
Ben Bernanke left the door open for future U.S. economic stimulus.

The key December cotton contract on ICE Futures U.S. rose 1.33
cents to close at $1.0432 per lb, moving from $1.0215 to $1.0488. It was an
inside day since the range was within Thursday's $1.0174 to $1.0639 band.

For the week, the market lost 1.79 percent.
Total volume traded hit over 7,700 lots, more than 40 percent below the
30-day norm, Reuters data said.

Traders said the December contract seems pinned in a band running from
$1 to around $1.0416, the area of support it broke down from this week.

'I think we're still kind of range bound in here,' said Sharon Johnson,
senior cotton analyst at commodities brokerage Penson Futures in Atlanta,
Georgia.

She said the trade may wait for next month's monthly supply report from
the U.S. Agriculture Department to 'get a more accurate read' of world
cotton crops and fiber demand.

December has endured a 50 percent retracement from its recent low
around 93 cents to its recent peak at $1.09.

A fall below $1 would open the door for another probe of lows hit
around 93 and then December could go to 90 cents, dealers said.

The market is still keeping tabs on the threat posed by Hurricane Irene
to cotton crops in Virginia, South Carolina and North Carolina although it
does not appear to be severe and has not been a prime mover of the cotton
market.

The U.S. Agriculture Department's weekly crop progress report on Monday
showed 22 percent of North Carolina's cotton bolls are open for the week
ending Aug. 21, and the figure for South Carolina is only 7 percent and 4
percent for Virginia.

Heavy rains falling on open cotton bolls would damage cotton quality,
rendering the fiber almost unusable for mills.

Since most of the cotton plants are still filling out and are not yet
open, the rains may even help the crop develop in those states. A state
like Georgia, the second biggest cotton grower in the country, could use
the rains because it has been hounded by a severe dry spell.

The level of investor interest in the cotton market improved slightly
to hit 147,441 lots as of Aug. 25, against the 140,442 lots on Aug. 11
which was then the lowest level in over two weeks, ICE Futures U.S. data
showed.

Total volume traded Thursday hit 16,655 lots, nearly triple the Tuesday
level of 6,410 lots, which is the lowest level since June 25, 2010, ICE
Futures U.S. data showed.