May 10 (Reuters) - India's spot cotton prices, which slid nearly 30 percent in the last one month, are expected to soften further this week on lower demand from millers and discouraging global cues, analysts and traders said.

"Cotton prices have declined in overseas markets and its impact is felt on the local market. Government's unclear policy on cotton shipment is also adding to the sentiment," said DheeraJ Khaitan, a trader based in Rajkot, Gujarat.

The key July cotton contract on ICE Futures U.S. fell 0.16 cent to settle at $1.454 per lb on Monday, trading from $1.4321 to $1.4856. It was the lowest close for cotton in almost four months, Thomson Reuters data showed. [ID:nN09248315]

On Tuesday, the most traded Shankar-6 variety closed steady at 43,500 rupees per candy of 356 kg each, data from Cotton Association of India showed.

It had touched a record high of 61,700 rupees per candy on March 30.

India will decide on allowing more cotton exports after the new harvest in October, Trade Minister Anand Sharma has said. [ID:nDEL000333]

Cotton arrivals in Indian spot markets till May 8 in the 2010/11 season edged up 2.8 percent on year, indicating that production might be lower than earlier estimates, state-run Cotton Corp of India said on Monday. [ID:nL3E7G220J]

The latest estimate of the Cotton Advisory Board (CAB) put India's output from the 2010/11 harvest at 31.2 million bales, lower than the previous estimate of 32.9 million bales, but still 5.8 percent higher than a year ago, which saw a drought. [ID:nSGE720077]

The Indian cotton year runs from October to September. One bale is equal to 170 kg.