* Market bounces, but July fails to go past Wednesday peak
* Cotton outlook seen staying gloomy as global economy shaky

May 24 (Reuters) - Cotton futures settled higher Thursday on
speculative short-covering as they rebounded from ending
previously at a 2-1/4-year low, but analysts said the market
remainsed vulnerable to further losses due to a shaky outlook
for the global economy.
Benchmark July cotton on the ICE Futures U.S.
exchange settled up 2.43 cents, or 3.4 percent, at 73.94 cents
per lb after ranging from 71.87 to 74.50 cents.
On Wednesday, the contract ended at 71.51 cents in the
lowest settlement for the spot cotton contract since early
February 2010, according to Thomson Reuters data.
December cotton rose 1.92 cents or 2.8 percent to
close at 70.67 cents, dealing between 68.90 and 71.03 cents. It
was an inside day as that range held within Wednesday's 67.73 to
71.40 band.
"We were big time oversold," said Jobe Moss, an analyst for
brokers and merchants MCM Inc in Lubbock, Texas.
The 14-day relative strength index reading stood near 31. A
reading of 30 or lower means the market is oversold and one of
70 or above meant a market is overbought.
Moss said gloomy economic prospects in the world economy
could eventually push values down to the area of 60 cents in the
weeks ahead.
Traders said that aside from fears over the euro zone, talk
continued to circulate that top cotton consumer China may be
selling some of its state reserves and that some cancellations
of U.S. cotton exports may have taken place as the price
tumbled.
Traders said any cancellations by China will only show up in
the U.S. Agriculture Department's weekly export sales report
next week when the activity for this week is tallied.
Volume on Thursday reached slightly over 27,000 lots, about
11 percent below the 30-day norm and the first time in five
sessions that volume traded may have fallen, Thomson Reuters
data showed.
The amount traded on Wednesday stood at 36,985 lots, having
risen for the fourth straight session to its highest level since
May 11, according to exchange data.
Open interest in the cotton market, an indicator of investor
interest, amounted to 190,932 lots as of May 23, the highest
level since April 5, ICE data showed.