NEW YORK, Jan 11 (Reuters) - Cotton futures dipped on Wednesday,
slipping off a two-month peak, as investors took to the sidelines ahead of the
monthly supply/demand report from the U.S. Department of Agriculture.

Benchmark March cotton futures settled down 0.09 cent at 96.87 cents
per lb after dealing between 95.20 and 97.28 cents, its priciest level since
Nov. 18.

Volume picked up as investors squared positions before the USDA report. A
little more than 16,000 lots exchanged hands in late New York business, nearly a
quarter above the 30-day norm, according to preliminary Thomson Reuters data.

Independent cotton analyst Mike Stevens of Louisiana said traders agreed
that USDA would cut its estimates of the size of the U.S. cotton crop, but that
was where the agreement ended.

'Traders have differing views on exports, domestic usage and season ending
carryover stocks,' he said.

'The U.S. numbers have to take a back seat to the WASDE portion where global
usage has been reduced each month this marketing year, resulting in the bearish
fundamentals of rising world carryout that sent futures below 85 cents in early
December,' Stevens added.

The March contract has gained about 15 percent from its December trough.
Cotton has been additionally supported by Chinese purchases as one of the
world's largest consumers boosts state reserves and in anticipation of slightly
lower U.S. cotton plantings.

Total volume traded Tuesday stood at 17,132 lots, down from Monday's count
of 25,253 lots, ICE Futures U.S. data showed.

Open interest, an indicator of investor exposure, grew to 147,317 lots from
the previous tally of 146,554 contracts.