Jan 25 (Reuters) - Indian cotton prices are likely to continue their gaining streak to set a lifetime high, buoyed by a sharp rise in global markets and good demand from exporters and local textile units, dealers said.

"Market is still getting lower than-expected-arrivals. Good demand is there from exporters. Textile mills are also competing with exporters," said Paresh Valia, an exporter based in Mahuva, in Bhavnagar district of Gujarat.

India, the world's second-biggest producer, had permitted 5.5 million bales for exports from Oct. 1 but met with a poor response because rains hit harvests. An initial deadline was extended until Feb. 25 for 1.7-1.9 million bales which went unshipped.

Overseas demand for Indian cotton has increased after bad weather hit crops in China and Pakistan, both leading consumers.

In India, the price of the most common Shankar-6 variety surged by 800 rupees to a record high of 47,100 rupees per candy of 356 kg each on Tuesday, data with the Cotton Association of India showed.

At 6:00 p.m., the New York cotton futures contract CTH1 was down 0.84 percent at $1.6058 per lb, after hitting record high of $1.6384 earlier in the day.

"Prices are very attractive for farmers and weather is also dry. We can see sharp rise in arrivals in next fortnight," said a senior official at Gujarat State Co-operative Cotton Federation Ltd.

Domestic cotton arrivals at Indian spot markets till Jan. 23 in the 2010/11 season rose 7.15 percent on year to 17.68 million bales, the state-run Cotton Corp of India said.

India is likely to produce a record 32.9 million bales of cotton in 2010/11, topping last year's 29.5 million bales, a senior government official said last week.