* Prices fell back after testing 76 cents
* Rising open interest points to return of investor appetite
* All eyes on USDA monthly report on Friday

NEW YORK, Aug 7 (Reuters) - Cotton futures eased on Tuesday
as producers sold into a two-day rally that had sent prices to
2-1/2-month highs after a month of rangebound trade.
The benchmark December cotton contract on ICE Futures
U.S. eased 0.42 percent to settle at 75.40 cents per lb. Prices
rose as high as 75.98 cents before selling pushed them lower.
Last week, encouraging export sales numbers and
better-than-expected U.S. jobless data lifted prices from a
range in the low 70 cents where they had languished for most of
July.
The rising price lured some growers out to sell, albeit in
low volumes, a textile mill source said.
Some market watchers attributed the latest rally to short
covering. But the rise in open interest, a reflection of
liquidity in the contract, also pointed to investor appetite.
The number of open commitments in the market has jumped 11
percent since the start of July, hitting a six-week high close
to 182,000 contracts on Monday, Thomson Reuters data shows.
The market awaits a report on global supply and demand by
the U.S. Agriculture Department on Friday, the first update for
the 2012/13 season, which started on Aug. 1.
Brokers are bracing for a cut in the world-ending stock
forecast due to disruptions in the harvest in India, the world's
No. 2 producer, where a weak and delayed monsoon may limit
output.
But demand has also taken a hit in China, the world's
largest consumer of fibers.
While Beijing's strategic reserve is hoarding almost half
the world-ending stocks from the 2011/12 year, the USDA has
already cut its estimate for the country's usage to multi-year
lows just under 40 million bales.
"The pessimism is consistent with the gloomy forecasts for
anemic economic growth rates around the globe and particularly
in China," said Sholom Sanik, analyst at Friedberg Mercantile
Group in Toronto.
The U.S. drought - the worst in more than half a century -
may prompt farmers to switch out of fibers and into soybeans to
take advantage of soaring prices for the oilseed. This could
reduce the U.S. cotton crop and cut into the market's surplus.
Profit taking dented corn and soybeans on Tuesday on
forecasts for more rainfall in the U.S. Midwest farm belt, but
the drought has pushed corn and soybeans sharply higher over the
past month.
The euro rose, along with a broad range of financial
markets, on hopes the European Central Bank will buy Spanish and
Italian bonds to boost the euro zone economy.
Any stimulus would be positive for cotton, which has been
hurt by weak global consumer spending and falling overall demand
as mills switch to or increase their use of manmade fibers.
Fibers have lost market share to cheaper artificial raw
materials after last year's wild gyrations in prices, which shot
to above $2 per lb in March last year.