NEW YORK, Nov 16 (Reuters) - U.S. cotton futures closed
Tuesday down the daily limit on investor liquidation sparked by
worries over euro zone debt which sent the dollar flying higher
along with lingering fears No. 1 consumer China will hike
interest rates, brokers said.

The decline in cotton though was more in line with falls in
other commodity markets and volume was sharply down from the
record high over 101,000 contracts hit last week when prices
touched a record top.

'We got a good scrubbing ... from euro zone and China,'
Keith Brown, president of commodity firm Keith Brown and Co in
Moultrie, Georgia, said when asked about the reason behind
cotton's sharp fall.

Despite the near 20 percent fall in value in U.S. cotton
futures since hitting an all time record last week, the market
is still the top performing commodity on the Reuters Jefferies
Commodity Index, up about 70 percent year to date.

(Graphic: http://link.reuters.com/kew48n)

The benchmark March cotton contract on ICE Futures
U.S. fell the 5.00 cent limit to settle at $1.292 per lb, with
the session top at $1.382. It was the lowest close for the
second position cotton contract since Nov. 1.

Volume traded was not as heavy though. The total stood at
around 32,000 lots, some 10 percent below the 30-day average
near 35,800 lots, Thomson Reuters preliminary data showed.
Spot December lost 5.00 cents to end at $1.3375.

Mike Stevens, an independent cotton analyst in Louisiana,
said cotton was hit by marco-economic factors such as the
'possibility that Ireland might need a bailout'.

News that South Korea upped its rates 'perpetuated fears
that China may be next,' he said.

An increase in rates in China would choke off growth and
hit cotton demand as mills scale back their production,
analysts said.

In China, the Zhengzhou Commodity Exchange's May cotton
contract last traded Tuesday at 28,330 yuan per tonne,
up 440 yuan on the day.

Cotton prices had been rallying since July due to strong
mill demand from China, tight stocks and buying by funds who
felt cotton was undervalued.

Analysts said the initial market advance on Tuesday was
spurred in part by talk that mills bought a large amount of
U.S. cotton at an industry meeting last week.

One said sales likely hit 500,000 (480-lb) bales. Another
said they stood at more than 1 million bales.