Aug 2 (Reuters) - India's cotton prices are likely to rise this week on a government decision to allow unrestricted export of the fibre for the two remaining months of the current season that ends September, traders, dealers and analysts said.

"We expect prices to go up by 2,000- 3,000 rupees per candy (1candy = 356 kg) in the current week on government's announcement," said B.P Shekhsaria, chairman DD Cotton, a Mumbai-based trading firm.

On Monday, the most traded Shankar-6 variety rose 1,000 rupees to 32,000 rupees per candy, data from trade body Cotton Association of India showed.

Cotton prices have fallen over 50 percent from a record high of 61,700 rupees per candy, hit on March 30.

India, the world's second largest grower and exporter, allowed unrestricted exports for the remainder of the current season due to abundant availability of stocks.

The cotton year runs from October to September.

Government's move to open up exports will support domestic prices, which were sagging for past few months.

India could export an additional 255,000 tonnes of cotton in these two months, traders are maintaining.

Cotton output in India has been revised to 32.5 million bales for 2010/11 year against 31.2 million bales estimated earlier.

In June government allowed shipment of extra 1 million cotton bales of 170 kg each on demand from traders and farmers, following a 30 percent decline in domestic since March.

It had already allowed shipment of 5.5 million bales in October last year.

Cotton acreage in India is likely to rise up to 15 percent in the 2011/12 season as farmers, lured by high prices in the current season, might plant the natural fibre in more areas.