* Cotton jumps as much as 3.6 percent in afternoon trading
* Mills return to buying as market approaches perceived floor - trader
* Support seen around 80- to 81-cent level - broker
By Chris Prentice
NEW YORK, Feb 27 (Reuters) - Cotton registered its largest one-day gain in six months on Wednesday, as mill buying lifted prices and gave fiber back much of the ground it had lost since reaching nine-month highs last week.
The most-active May cotton contract on ICE Futures U.S. rose 2.55 cents, or 3.1 percent, to settle at 84.38 cents per pound, its largest one-day gain since early August.
The front-month on a continuous basis rose 2.4 cents or 3 percent, to 82.73 cents per lb, its biggest one-day rise in a month.
Cotton declined more than 4 percent since reaching its highest price in nine months last Wednesday. The steep drop pushed cotton to a perceived floor and prompted buying.
"Mills are paying up to these price levels, which has created a floor to the market. Before, there was trouble getting 80 cents, but now there's that industry participation," Chris McGowan, a trader with Newedge in New York.
Fiber touched 85.24 cents a lb on Feb. 20, the highest level since May 2012. The rally unwound by the week's end with fiber posting a third straight weekly loss as mills moved to the sidelines of the falling market and as speculators took profits.
Prices felt further weight early this week from falling financial markets as political uncertainty in Italy incited concern over euro zone stability.
"We made a test of 85 cents, and then the market took some of that back. Some of the macro factors have knocked us down a couple notches," McGowan said.
But a dip to a two-week low on Tuesday spurred buying, which continued into Wednesday's session.
"There was some buying overnight. There's support around 80 to 81 cents, based on previous lows. The trade will buy on these dips," said Joseph Ricupero, vice president at RJ O'Brien in New York.
Trading volumes were slightly higher than average on Wednesday, near 27,000 lots compared with a 30-day average of about 24,000, according to preliminary Thomson Reuters data.
Cotton traded up throughout the session, with activity spiking in late-day trading as prices surged as high as 84.76 cents a lb.
A return of speculative buying may have been a major contributor to the late-day boost, Ricupero said.
Cotton prices have risen more than 8 percent so far this year, largely driven by speculators, who have raised their bullish stance in cotton futures and options contracts to a 2-1/2-year high in the week to Feb. 19.
Wednesday's gains put cotton back above the 10- and 20-day moving averages that prices had remained below in the first two days of the week. (Reporting By Chris Prentice; Editing by M.D. Golan)
