March 6 (Reuters) -ICE cotton futures rose more than 1% on Monday, supported by a dip in U.S. dollar, although weakness in wider grains market capped the gains ahead of a keenly watched supply-demand report this week.

* The cotton contract for May CTc2 rose 0.9 cent, or about 1.1%, to 85.07 cents per lb at 12:07 a.m. EST (1707 GMT).

* "The good bullish news is that China starting to buy, they're buying from Australia again... it shows that China's economy is starting to get a little better," said Jack Scoville, vice president at Chicago-based Price Futures Group.

* The market seems to be content to trade in the sideways range right now, but "once we get to 86 cents it will start running into some selling pressure".

* The U.S. dollar index .DXY slipped against a basket of currencies, making cotton less expensive for other currency holders. USD/

* Investors are awaiting the U.S. Department of Agriculture's (USDA) monthly estimates on world supply and demand due on Wednesday.

* Chicago wheat, soybean and corn fell on expectations the safe shipping channel to export grain from war-torn Ukraine will be extended. GRA/

* Speculators increased their net short position in cotton futures on ICE by 2,666 contracts to 11,836 in the week to Feb. 7, data from the Commodity Futures Trading Commission showed. CFTC/

Reporting by Rahul Paswan in Bengaluru; Editing by Shilpi Majumdar