NEW YORK, Oct 12 (Reuters) - Cotton futures fell almost 3
percent on Wednesday as investors liquidated after a government
crop report showed supply was larger than earlier predictions,
which looked set to keep pressure on prices in coming days.

The key December cotton contract on ICE Futures U.S.
settled down 2.96 cents at $1.0051 per lb, trading from $1.04
to 99.67 cents. The market has traded in a band between 98
cents and $1.04 for the last 14 sessions.

Total volume traded Wednesday hit over 16,500 lots, about a
third above the 30-day norm, preliminary Thomson Reuters data
showed.

'We fell out of bed. It's been a pretty negative report,'
said Sharon Johnson, senior cotton analyst for commodities
brokerage Penson Futures in Atlanta, Georgia.

In its monthly crop report Wednesday morning, USDA
increased its estimate for world ending stocks in 2011/12 to
54.83 million (480-lb) bales from 51.91 million estimated last
month. It raised its forecast for world cotton production to
124.19 million bales from 122.96 and reduced world cotton
consumption to 114.38 million from 115.22 million bales in last
month's USDA report.

'It's across-the-board bearish...any way you slice it,'
added Jobe Moss, an analyst for brokers and merchants MCM Inc
in Lubbock, Texas.

He said most players were looking for a reduction in U.S.
and world cotton production and got wrong-footed when the USDA
numbers went in the opposite direction. The same thing happened
in U.S. and world cotton ending stocks where the trade was
expecting lower figures, but got the opposite.

Johnson said the question now is whether the mills, who
need to get some coverage going forward, would be 'patient
enough' to wait for prices to sink below the bottom of the
trading range at 98 cents.

'Are they going to wait for 95 (cents)?' she asked.
Open interest in cotton, an indicator of investor exposure,
stood at 153,794 lots as of Tuesday, down from 154,553 lots on
Monday, the exchange said.

Total volume traded Tuesday in the cotton market reached
12,216 lots, up versus 7,552 lots last Friday which was the
lowest amount traded since Sept 16, exchange data showed.