* Merchant business picks up at 84 cts/lb -broker
* March contact settles along 14-day moving average
* Exchange stocks surge by 60,600 bales -ICE data
NEW YORK, Jan 29 (Reuters) - Cotton futures rallied as much as 2.7 percent on Wednesday as buy stops fueled gains seen on trade buying at two-week lows and an end to this week's waves of speculator selling.
The most-active March cotton contract on ICE Futures U.S. rose 1.2 cents, or 1.4 percent, to settle at 85.55 cents a lb and near key moving averages.
The contract popped as high as 86.61 cents a lb, recovering some of Monday's steep losses when prices sank the most in four months to a near two-week low.
The March contract had fallen and stabilized at support near its 200-day moving average at 83.70 cents after Monday's sharp fall.
"The speculator selling ran out, and the merchants were doing business consistently at 84 (cents)," said a U.S. broker, noting buy stops at 85.40 cents a lb.
Total market open interest fell to 184,638 lots on Tuesday, down by 4,000 contracts from Friday and seen as evidence of long liquidation amid investor skittishness and concern that high prices would crimp demand.
Traders in top consumer China said that mills are holding off on orders as they fear Beijing will issue fewer import quotas this year.
China will overhaul a three-year stockpiling program in the 2014/15 season, swapping it for a trial subsidy program for farmers in the country's key growing region.
The policy has kept a floor under global prices as China's imports surged and inventories ballooned.
Beijing's decision to scrap the controversial program has stoked fears China's import demand will plunge and set prices up for a steep tumble.
Even so, strong demand for U.S. cotton in recent months has worried traders over the availability of high-quality cotton in the world's top exporter and buoyed prices in the face of the worries over Chinese demand.
But exchange stocks have been climbing.
They jumped to nearly 136,700 bales on Wednesday, up from 76,100 previously and 34,100 bales at the start of the month, ICE data compiled by Reuters showed. (Reporting by Chris Prentice; Editing by David Gregorio)
