NEW YORK, April 26 (Reuters) - U.S. cotton futures slid to
their lowest levels in 2-1/2 months on Tuesday, closing at
their downside limit with ample supplies for waning demand, and
caution ahead of the U.S. Federal Reserve's policy meeting.

Analysts said many commodity investors were nervous and the
sidelines ahead of Wednesday's Fed policy announcement.

U.S. Federal Reserve officials will continue their two-day
policy meeting on Wednesday.

'The market is weak and July futures just came off more
than the others. It's mostly economic issues as people are
skittish about the growth outlook and chatter about raising
interest rates,' said Bill Raffety, senior analyst for futures
brokerage Penson Futures in New York.

Despite deliveries being underway for May cotton on
ICE Futures U.S., fell a steep 6.24 cents to end at $1.8184.

There were no delivery notices on Tuesday, with a total of
13 being issued to date, all of which went to the world's
largest cotton merchant, Allenberg on Monday.

Most-active July futures slid 6.0 cents, the
downside limit, to close at $1.6039 per lb., a 3.61 percent
crop. New-crop December cotton lost 4.52 cents to settle
at $1.2944 cents a lb., a 3.37 percent decline.

The Fed was unlikely to raise interest rates given an
uncertain U.S. economic outlook, though talk of inflation in
commodity markets heightened nervousness among some players.

For the first-time ever in the central bank's 97-year
history, Chairman Ben Bernanke will hold a press conference
that had players in many markets on edge and on the sidelines,
though no big surprises were expected.

'Mr Bernanke will probably not be saying anything too
dramatic. For a first go, he simply wants it to happen without
any errors, glitches or sudden surprises,' said Sterling Smith,
an analyst for Country Hedging Inc. in St. Paul, Minnesota.

July cotton continued to get hit from new supply coming
from Southern Hemisphere growers.

'Business is dead right now and you probably have a 9
million bale crop coming out of Brazil,' said Raffety, adding
that Argentina and Australia also have supplies hitting the
global market.

In Texas, however, excessive dry conditions have put the
December crop in jeopardy.

'Texas is still a question mark. Texas grows about half the
U.S. crop and probably about half of that crop is dryland. If
it stays dry, about 1 to 2 million bales are knocked off the
States crop, but Brazil could make up for that,' said Raffety.

Mike Stevens, an independent cotton analyst in Mandeville,
Louisiana added that July was lower from, 'Technical weakness,
extremely weak yarn prices with buyers backing off, aggressive
offers out of Brazil, Australia or Argentina, and Chinese
prices much lower over night.'

Weather predictor Meteorlogix, DTN's commercial weather
service, forecast mostly dry conditions in Texas, the largest
U.S. cotton producing state.

It said, temperatures were expected to remain near or below
normal in the North and near to above normal in the South, at
least through the weekend.

'Dryland cotton through South Texas is stressed, due to
lack of moisture. Field preparation is active through West
Texas where more rain is needed,' DTN said.