* Close above 100-day moving average taken as buy signal

* Fiber breaks from range, rallies 4.2 percent since Tuesday

* Uncertainty remains over U.S. supplies, China demand -poll

NEW YORK, Aug 8 (Reuters) - ICE cotton futures climbed to their highest levels since mid-June as investor buying driven by technical signals continued for a second session and sparked the market's biggest two-day rally in eight weeks.

The most-active December cotton contract on ICE Futures U.S. settled up 0.92 cent, or 1 percent, at 89.25 cents per lb, after touching 89.42 cents, its highest price since June 17.

An absence of significant selling freed cotton to climb after it rose above key levels and gained technical strength, dealers said.

"This is follow-through buying, and with the merchants already pretty short, they are not willing to sell anymore," said Sharon Johnson, a cotton specialist with KCG Futures in Atlanta.

"We'd been going through a coiling action of higher lows and lower highs in sorry volumes, but then closed higher on Tuesday."

December cotton had been trading in a tight range in light volumes before closing above the 100-day moving average of 85.62 cents on Tuesday, seen as a buy signal for investors.

Investor buying continued through Thursday's session, driving a 4.2 percent rally since Tuesday.

Fiber was also buoyed by worries that rain in the southeastern United States may soak fields and reduce cotton yields in a key growing region of the world's top exporter.

Open interest totaled 186,221 contracts on Wednesday, jumping by a whopping 11,186 lots from the previous session, as traders interpreted a 3 percent rally as evidence of new long positions in the market.

Traders said the cash market has been strong in recent days, particularly on demand from China, the world's largest textile market.

Despite the pickup in demand, weekly U.S. government export data showed that sales of 81,400 running bales in the week ending Aug. 1 were below sales registered in the same time period last year.

Demand from China and upcoming U.S. supplies are the two uncertainties driving worry in the cotton market, according to a poll of 15 cooperatives, traders, and analysts.

Dealers eyed the U.S. Department of Agriculture's monthly supply and demand report due on Monday, the first of the new crop year that began on Aug. 1., for government expectations of U.S. production and exports. (Reporting by Chris Prentice; editing by Jim Marshall)