ICE cotton futures gained more than 2% on Wednesday, supported by mill buying and as investors bought back the natural fiber following a sharp fall in the previous session.

Cotton contracts for March was up 1.72 cents, or 2.48%, at 70.96 cents per lb by 12:26 p.m. EST (1726 GMT).

It traded within a range of 68.71 and 71.30 cents per lb.

Prices fell 2.8% on Tuesday, marking their biggest daily percentage decline in more than five months.

“Yesterday the speculators were rushing to sell the market. … We are seeing some mill fixation going on today," said Bailey Thomen, cotton risk management associate with INTL FCStone.

“Also there is some short-covering; once the market dipped overnight buyers started to come back in."

Traders and farmers are keeping a close eye on China's demand following the initial trade deal between the United States and China.

China committed to buy $40 billion in US agricultural products annually over the next two years under the Phase 1 trade deal signed last week.

“Further on the subject of the New Year in China, the nation has not yet made any significant purchases of US agricultural commodities since the signing of the Phase One agreement, and it seems that they are now unlikely to do so before the first week in Feb.," Louis Rose, director of research and analytics at Tennessee-based Rose Commodity Group, said in a note.

Total futures market volume fell by 8,072 to 42,656 lots. Data showed total open interest gained 4,281 to 258,018 contracts in the previous session.

Certificated cotton stocks deliverable as of Jan. 21 totaled 6,792 480-lb bales, unchanged from 6,792 in the previous session.