* Tight supply, fund inflows propel cotton futures

 * USDA seen lowering China crop estimates next week

 * Fed's quanitative easing to spur further cotton surge
 (Recasts, updates prices, market activity to U.S. close)

 By Rene Pastor

 NEW YORK, Nov 3 (Reuters) - U.S. cotton futures rose in
heavy trading on Wednesday, finishing at a record top for the
third straight day as speculative fund buying boosted prices
along with strong Chinese cotton prices and tight supplies,
analysts said.

 Bullish fundamentals lured speculative funds into cotton,
up more than 75 percent this year. That is the strongest gain
so far in 2010 on the Reuters-Jefferies commodity index, far
ahead of the record-setting gold market and wheat futures.

 The market is seen getting a further boost over the next
few weeks from a decision by the U.S. Federal Reserve to buy
$600 billion of government bonds to resuscitate the flagging
U.S. economy. [ID:nN03287174] Also see [MKTS/GLOB] and [FRX/]

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 Graphic on commodities' performance:  

 r.reuters.com/baf29p    

 link.reuters.com/kew48n

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 The ICE Futures U.S. cotton market kept pace with a rally
in cotton futures on China's Zhengzhou Commodity Exchange, but
eased back from session peaks on mild profit-taking.

 "Prices shot to new record highs on the heels of overnight
prices in China and new record highs for the (Cotlook) A
Index," said Mike Stevens, an independent cotton analyst in
Louisiana.

 The benchmark December cotton contract CTZ0 rose 1.26
cents to end at $1.3552 per lb, having hit a new record high
for the third straight session at $1.392 per lb. The session
low was $1.3321. Under exchange rules, the daily limit will
revert back to 5 cents from 6 cents on Wednesday.

 Business was heavy. Volume traded reached 65,781 lots, more
than 150 percent above the 30-day average at 25,663 lots,
Thomson Reuters preliminary data showed. The volume on
Wednesday was just below the year high of 67,885 lots set on
June 10.

 China's benchmark May cotton contract CCFc4 jumped to
29,980 yuan a tonne, setting a record for a third straight day.
The contract last traded at 29,715 yuan, up 1.075 yuan.

 The Cotlook A index cotton price, the combined average of
the five cheapest cotton prices in the world plus transport,
was quoted at $1.524 on Wednesday, a hefty premium of around 13
cents over New York cotton futures.

 The A Index normally has a premium of 6 to 8 cents over
U.S. cotton prices. It has been running at a premium of 9 to as
much as 15 cents during the rally.

 Sterling Smith, an analyst for brokerage Country Hedging
Inc. in Minnesota, said the decision by the Federal Reserve on
quantitative easing would likely keep the greenback under
pressure and boost commodities like cotton among others.

 "All in all, it means more dollars," he said. "The debt's
going to expand. It should lead to a weaker dollar."

 "In general ... any commodity that has a good fundamental
story is going to have legs on this."

 "It will be bullish for commodities in general --
particularly those that are sensitive like sugar, coffee and
cotton that have supply issues boosting their markets."

 Cotton rose more than 20 percent in October and has gained
over 90 percent since the rally kicked off in July.

 "There is a big supply gap at home and abroad," said Yang
Guoqi, an analyst with Jinshi Futures in China's largest cotton
producing region of Xinjiang.

 The market gained more momentum from reports of late rains
hitting crop quality in India, the world's No. 2 exporter of
the fiber, and expectations the U.S. Agriculture Department may
lower China's cotton crop forecast in its monthly supply/demand
report due out on Tuesday.

 "The talk of continuing physical demand, late season rain
in Indian cotton fields and speculative exuberance propelled
the market higher again," Commonwealth Bank of Australia said
in a daily note.

 In technical terms, Thomson Reuters analyst Wang Tao said
U.S. cotton prices, basis the second-position March contract,
could rise to $1.4116 per lb over the next four weeks as part
of a wave pattern. [TECH/C]

 The March cotton contract CTH1 increased 2.21 cents to
finish at $1.3166 per lb, having hit a lifetime peak of
$1.3495.
PRICES AT 3:10 P.M. EDT (1910 GMT)

    SETTLE     NET    PCT     LOW    HIGH  CURRENT

              CHNG   CHNG                      VOL
CTZ0   135.52    1.26   0.9%  132.31  139.20   27,582
CTH1   131.66    2.21   1.7%  126.45  134.95   25,101
TOTAL MARKET            VOLUME           OPEN  INTEREST

          CURRENT    30D AVG     Nov 02  NET CHNG
ICE Cotton    65,781    25,663     243,838    -3,250