* Mills look for bargains, grains soar
* Technically, cotton still weak - chartists
Aug 26 (Reuters) - Cotton futures rose 1 percent on Monday, recouping more ground lost last week as textile mills hunted out bargains after the market's worst weekly performance in two years and as grains markets soared.
"Cotton certainly had help from the grain and oilseed complex," said INTL FCStone analysts.
The benchmark December cotton contract on ICE Futures U.S. rose 0.8 cents, or 1 percent, to settle at 84.9 cents a lb on Monday.
Prices are still up about 13 percent since the start of the year, but a long way from multi-month highs earlier this month when prices breached 90 cents due to speculative buying.
Speculators sold en masse last week when global output showed signs of improving.
Following their rout, which saw cotton lose almost 10 percent of its value, speculators now appear to be switching into grains markets as hot, dry weather threatens to cut output in parts of the U.S. Midwest.
Corn and soybean prices rallied even though the United States is expected to produce a bumper crop this year.
Speculators also used Monday's bounce to offload further long positions built when cotton prices were higher, a trader said.
The latest data on Friday showed hedge funds and other money managers had built up their largest bullish position in five months in the week to Aug. 20.
"They're unloading when they get the chance. They're bloodied and need time to repair," said one U.S. trader.
Technicians and traders said risks are still to the downside after prices failed to hold on to an intraday high of 85.54 cents on Monday. The market is likely to find support around 82 cents.
"Do not discount another test of the 81-82 cent level," said Mississippi State University Agricultural Economist O.A. Cleveland.
The market's gains were in line with the broader commodity market even after weaker-than-expected U.S. durable goods data in the morning renewed concerns about the health of the world's largest economy.
The 19-commodity Thomson Reuters-CRB index rose 0.7 percent. (Reporting by Josephine Mason; Editing by Phil Berlowitz)
