NEW YORK, Dec 2 (Reuters) - Cotton futures ended the week
with modest gains in the middle of a lower range amid light
volume, as mills work down their inventories, analysts said on
Friday.

Key March cotton futures closed 0.54 cent higher at
91.84 cents per lb. It set its second inside trading day in a
row, meaning a lower high and a higher low, as the range
narrowed between 90.92 to 92.27 cents.

Analysts said they think the sideways range developing
since Nov. 21 is setting up for a break to the upside. An
attempt to push lower on Nov. 29 failed and light but
consistent buying has kept cotton supported.

On Friday, volume was especially thin at around 6,127 total
contracts, close to 75 percent below the 30-day average,
according to ICE Futures data.

The previous session's volume came to 14,730 contracts.

'It was definitely a slow day with low volume. The narrower
range suggests we're going to test one side or the other and
see who comes out ahead,' Sharon Johnson, senior cotton analyst
at Penson Futures in Atlanta.

More positive economic readings recently and improving
cotton export data may push cotton towards the upside.

'The unemployment number helped a little bit today. But,
once the bloom is off the bush, with positive export numbers
yesterday, after midday things slowed down,' Johnson said.

U.S. employment growth picked up speed in November and the
jobless rate dropped to a 2-1/2 year low of 8.6 percent,
further evidence the economic recovery was gaining momentum.

On Thursday, USDA said net upland cotton sales hit 85,000
running bales (RBs, 500-lbs each), of which China accounted for
65,000 RBs. Over the preceding three weeks, USDA's weekly
export sales data showed China bought over 2.3 million running
bales (RB,s 500-lbs each) as it replenishes state stocks.

USDA's monthly supply and demand report comes out next
Friday and analysts said they expect a mixed bag, with a
positive tone as the pick up in exports filters into world
consumption figures.

A lot of cotton mills continue to licking their wounds
after having bought the fiber at much loftier levels and then
watching prices fall sharply from those highs. Moreover, credit
conditions remain tight.

'So, the mills have had the worst of both worlds. But now
they are starting to get rid of enough of the old crop so that
they are buying more of the new,' Johnson said.

New crop March cotton's trend has been gently edging up
after sliding on Nov. 29 to a near 13-month low of 88.50 cents.

For a second position contract, it was the lowest intra-day
level since Sept. 2010, Thomson Reuters data showed.

Open interest in the cotton market, usually taken as an
indicator of investor exposure in the market, came to 137,145
lots on Thursday, down from 137,741 lots on Wednesday, exchange
data showed.