* July and December hold above Thursday's low
* Market takes respite on end-of-week short-covering

May 18 (Reuters) - Cotton futures closed higher Friday on
speculative short-covering in a rebound from ending at a
2-1/4-year low in the previous session, with analysts saying the
euro zone debt crisis could dictate direction next week.
World stocks erased the year's gains as investors fled risky
investments for safe haven assets on concerns over Europe's
deepening crisis.
July cotton on the ICE Futures U.S. exchange went up
1.34 cents, or 1.75 percent, to finish at 76.65 cents per lb,
trading from 76.47 to 78.12 cents. It was an inside day as the
range held within Thursday's 76.26 to 78.23 band.
For the week, the contract was down 1.24 percent.
New-crop December rose 1.31 cents, or 1.77 percent,
to end at 75.21 cents, trading from 74 to 75.56 cents. It was
also an inside day since it lay within Thursday's 73.78 to 75.60
cents band. The contract was down 1.48 percent on the week.
Sharon Johnson, senior cotton analyst for commodity
brokerage Penson Futures in Atlanta, Georgia, said investors who
had been pressing the short side of the market opted to cash in
their gains.
"It's Friday and time to take your money and go home," she
said. "We're grossly oversold."
July held above the Thursday low of 76.26 cents and December
matched this by staying above yesterday's low of 73.78 cents.
Traders said the market's next move will still depend to a
great degree on the worsening euro zone debt crisis and how it
is feeding into a strong U.S. dollar. There is also the presence
of a large U.S. cotton crop affecting the market.
Johnson said the question is whether all the bearish news
has been priced into the cotton market given its recent sharp
sell-off.
The short-covering in the market lifted the 14-day relative
strength index reading to 29.5 from 23 in the previous session.
A reading of 30 or below normally means a market is oversold and
one of 70 or higher meant it is overbought.
Fundamentally, there is little in the way of news except for
the weekly export sales report from the U.S. Agriculture
Department due out next Thursday.
Cotton is now trading at levels last seen before a historic
rally which began in August 2010. That surge lifted cotton
prices to a record high of $2.27 per lb, a level which topped
even the price that cotton fetched during the U.S. Civil War in
the 19th century.
Volume on Friday reached almost 16,000 lots, about a third
under the 30-day norm, Thomson Reuters data showed.
Open interest amounted to 187,786 lots as of May 17, the
first time it had fallen after rising the past three sessions,
ICE Futures U.S. exchange data showed.