* Fiber mixed after biggest two-day drop in almost 5 years

* Market draws support as price drop stirs mill interest

* U.S. export data weak, recent price rally slowed demand

NEW YORK, Aug 22 (Reuters) - Cotton futures were little changed on Thursday as mill demand underpinned the market, which had sustained huge losses the previous two days amid investor liquidation.

The benchmark December cotton contract on ICE Futures U.S. edged down 0.06 cent, or 0.07 percent, to settle at 84.18 cents per lb after mixed trading throughout the session.

The second-month contract posted its largest two-day loss since December 2008 during the previous two sessions.

"There was not enough demand to stop the selling until today," said a U.S. trader, who noted renewed mill buying in foreign markets.

Mill buying had slowed as prices climbed about 9 percent in eight sessions the previous two weeks. The futures set a five-month high of 93.72 cents a lb last Friday on the rally that was driven by speculator buying, traders said.

December cotton futures remained technically weak after sinking past their 100-day moving average during this week's drop, dealers said.

Total open interest fell by more than 17,000 contracts on Tuesday and Wednesday, according to exchange data, as prices sank nearly 10 percent and investors exited bullish bets.

ICE Futures U.S. raised the initial margins for the contract following the steep losses. Raising margins is expected to reduce some of the heavy trading seen in recent sessions.

Concern over tight supplies fueled much of the previous week's rally. The U.S. government last week reduced its forecast for U.S. and global output.

Noncommercial dealers had increased their net long position in cotton futures and options to the highest levels since March, weekly U.S. government data showed last week.

Warmer weather in the Southeast United States in recent days has eased worries about crop damage in that key growing region of the world's top exporter.

Expectations of huge supplies in India, the world's second-largest producer, have weighed on prices.

Dealers said that weekly U.S. government export sales were weak in the week ending Aug. 15, when prices were moving higher, but noted strong shipments at 240,500 running bales.

Concerns about tight U.S. supplies persisted because of this year's late crop.

The December contract's premium to the March contract narrowed during the sell-off and on Thursday, though the market remained inverted as concerns continued about tight nearby supplies.

The 2013/14 U.S. crop, which will be harvested in late summer and fall, is expected to be the smallest in four years. Also, exchange stocks have fallen steeply since the beginning of July.

More than 60 percent of the projected record global stocks are expected to become part of China's inventories by the end of July 2014. That would likely make them unavailable to the global marketplace.

Beijing began a stockpiling program in 2011, paying above global prices to support farmers. (Reporting by Chris Prentice; Editing by Bob Burgdorfer)