* Cotton set to pierce record of $1.172/lb hit in 1995

 * Chinese rally, dollar inspires U.S. cotton surge

 * Coming up: Friday's USDA cotton export sales data
 (Adds Chinese cotton market action, writes through with U.S.
cotton option trading halted and closing U.S. cotton price)

 NEW YORK, Oct 14 (Reuters) - U.S. cotton hit a fresh
15-year high on Thursday and could soon pierce the all-time
high set in 1995 on buying spurred by a rally in Chinese cotton
prices and the U.S. dollar sinking to a 2010 low, analysts
said.

 Cotton traded limit-up for the third time in four sessions,
with prices rising over 50 percent since late July, making it
the best-performing commodity in the CRB index .CRB so far
this year.

 The key December cotton contract CTZ0 increased the
4-cent daily limit to finish at $1.1487 per lb, up 3.6
percent.

 Cotton also got support from the dollar dropping to a low
for the year against a basket of currencies, as a weak dollar
often spurs buying of commodities, many of which are priced in
the U.S. currency. [FRX/]

 "This is a dollar and China rally," said Mike Stevens, an
independent cotton analyst in Mandeville, Louisiana.

 Cotton prices in China rose the 4.0 percent limit up on
Thursday as China tries to curb what it describes as excessive
speculation amid tight stocks and strong demand. The benchmark
May 2011 cotton futures CCFK1 closed at 24,480 yuan
($3,674/tonne), up 3.7 percent from the previous close.
[ID:nTOE69D080]

 The rally was matched by the ICE Futures U.S. cotton
market. Under exchange rules, the daily limit in the U.S.
cotton market will increase to 5 cents on Friday.

 Prices in the options ring rose so much that options
trading was halted at 1:16 p.m. EDT (1716 GMT).

 In the options market, cotton was trading at a synthetic
price equal to double the daily price limit of the futures
market, or up 8 cents at $1.1887 per lb.

 Anlaysts said U.S. cotton futures will likely set an
all-time record on Friday above the previous mark of $1.172 hit
in April 1995. However, technical signals indicate that cotton
is overbought. (Graphic on cotton technicals:
link.reuters.com/par58p)

 U.S.-based cotton brokers said the strength of Chinese
cotton buying could be seen in the the cash cotton market, with
prices at levels way above those in the futures market.

 "Until the (cotton) futures outpace the cash market, we're
not overbought," said Ron Lawson, cotton analyst at commodity
consultants logicadvisors.com in Sonoma, California.

  Lawson said the funds will keep buying cotton because they
believe the rally has the momentum to hit levels like $1.20 or
even $1.30 per lb.

 He added the funds have the momentum to do this because
open interest in the U.S. cotton market has not even approached
the 300,000 lots level last seen in 2008 when prices spiked.

 Open interest in cotton stood at 234,794 lots as of
Wednesday and the market has stayed in a range from 231,000 to
236,000 lots over the past few weeks.

 CLOSING PRICES

    SETTLE     NET    PCT     LOW    HIGH  CURRENT  DAY AGO

              CHNG   CHNG                      VOL      VOL
CTZ0   114.87    4.00   3.6%  110.90  114.87    8,338   12,746
CTH1   110.97    4.00   3.7%  106.95  110.97    6,206    6,315
TOTAL MARKET            VOLUME                 OPEN  INTEREST

          CURRENT    Oct 13   30D AVG     Oct 13  NET CHNG
ICE Cotton    20,274    19,984    20,507    234,778       576