NEW YORK, Jan 7 (Reuters) - U.S. cotton ended down about
half percent after a relatively quiet session on Friday that
capped a volatile week for the fiber.

Benchmark March cotton contract on ICE Futures U.S.
closed down 0.62 cent, or 0.4 percent, at $1.4060 per lb. It
moved in a three-cent band during the session, touching a low
of $1.3961 and high of $1.4250.

'There is little fresh news to stimulate traders to try and
move out of the trading range,' Mike Stevens, an independent
cotton analyst in Mandeville, Louisiana, said.

Cotton had swung wildly earlier in the week, trading in a
band of more than five cents in three sessions.

Thursday's session was particularly volatile, with the
March contract nearly rising by the four-cent trading limit
only to fall as much later.

For the week, March cotton fell 3 percent, its sharpest
loss since late November.

Analysts said prices rallied on speculative buying linked
to talk of limited supplies coming into the new year. They
later dived on selling related to a rebalancing of cotton
holdings by commodity indexes.

Index funds will be paring risk from cotton and other
overly-weighted agriculture markets and adding exposure to
natural gas and crude oil under the rebalancing which runs
between this week and next.

Investment bank JPMorgan Chase has estimated that nearly
14,000 cotton contracts could be offloaded under the exercise,
putting immediate pressure on cotton despite its strong
fundamentals over the longer term.

Some traders think the liquidation pressure over the next
fortnight could take ICE's benchmark March cotton to below the
key $1.30 mark.

But some market bulls are eyeing record highs above $1.60
per lb, saying this could even happen in the near term if
supply fears worsen from floods in Australia and dry conditions
in the U.S. cotton belt of Texas.

March cotton peaked at $1.5912 on Dec 21, capping a streak
of highs last seen during the 1861-1865 U.S. Civil War -- a
time when the President was Abraham Lincoln.

Many in the U.S. cotton industry who attended an annual
conference in Atlanta that ended on Friday appeared cautiously
optimistic that high prices will persist in 2011.

According to a report by the U.S. Department of
Agriculture, circulated at the conference on Friday, the world
cotton trade needs beginning stocks of at least 42.5 million
(480-lb) bales of cotton at the start of a new marketing year
to avoid market disruption.