* December prices pared some grains after hitting resistance
* Traders brace for USDA crop report on Thursday
(Reuters) - ICE cotton rose more than 1 percent to 2-1/2 week highs on Monday, on a combination of a weaker dollar and stronger grains complex as traders awaited the U.S. government's final monthly crop report before the 2013/14 season starts on Aug. 1.
The most-active December cotton contract on ICE Futures U.S. rose more than 1 percent to 85.95 cents per lb, the highest since June 20.
It pared some of those gains after getting close to a big technical resistance level at 86 cents. Prices settled at 85.33 cents per lb, up 0.3 cent, or 0.35 percent.
U.S. corn prices rose, triggered by forecasts of stressful heat in the Midwest later this month, with the new-crop December contract rebounding from a 2-1/2-year low last week.
The dollar eased off three-year highs against major currencies. U.S. equities gained. A weaker dollar makes commodities priced in U.S. currency cheaper for holders of other currencies.
Recent robust economic data has signaled a continued improvement in the U.S. economy and increased the likelihood the Federal Reserve will in the near future start to reduce its $85-billion-per-month in monetary stimulus.
Prices have been volatile and trading choppy in recent sessions as traders struggle to digest conflicting supply-and-demand factors.
On the one hand, next season's U.S. crop will drop sharply from 2012/13 levels due in part to the drought in the Southwest cotton belt, but on the other the start of India's monsoon has been the best in more than a decade, which bodes well for the world's No. 2 crop.
"There are plenty of pluses and minuses for traders to pick and choose from, which may explain why cotton prices cannot settle on a trend for more than a day or two, a week at best," said Sharon Johnson, cotton specialist at Knight Futures.
Ahead of the USDA report on Thursday, sentiment was nervous after last Friday's weekly export sales data showed a 40 percent drop in sales in the week to June 27.
"The only question traders are concerned about with this crop year is whether exports will reach last month's USDA higher estimate," said Johnson.
The USDA has pegged exports at 13.6 million 480-lb bales, which equates to 13.21 million running bales, the measurement used in the export data.
With just a month before the end of the marketing year, the country had shipped 12.01 million running bales, 1.2 million shy of the official estimate of 13.21 running bales. (Reporting by Josephine Mason; Editing by Steve Orlofsky)
