NEW YORK, Jan 11 (Reuters) - U.S. cotton futures closed up
the daily trading limit on Tuesday on speculative buying ahead
of a U.S. government report that is expected to show reduced
supplies in China and a smaller crop in flood-ravaged
Australia, analysts said.

The benchmark March cotton contract on ICE Futures
U.S. increased the daily 4.00-cent limit to settle at $1.4725
per lb, with the session low at $1.4315.

Volume traded was 17,200 lots, over 50 percent below the
30-day norm, Thomson Reuters preliminary data showed.

'The market's looking for cuts tomorrow,' said Mike
Stevens, an independent cotton analyst in Mandeville,
Louisiana.

The U.S. Agriculture Department's monthly supply/demand
report is scheduled for release at 8:30 a.m. EST (1330 GMT) on
Wednesday.

In its December report, USDA pegged China's cotton ending
stocks at 13.22 million (480-lb) bales, unchanged from the
preceding month's estimate.

USDA estimated Australia's cotton harvest at 4.0 million
bales, from 3.5 million in the preceding month's estimate.

Stevens said many in the trade are anticipating a reduction
in cotton ending stocks for top consumer China and a cut in
output from Australia, where historic flooding caused by the La
Nina weather anomaly has devastated the country.

He said the market is now monitoring for demand destruction
amid the strong cotton futures prices heading into the spring
of 2011.

Another factor for the market is the rebalancing by index
funds aiming to cut risk from cotton and other overly weighted
agriculture markets and adding exposure to natural gas and
crude oil. The rebalancing runs between this week and next.

Cotton was the best performing commodity in 2010 in the
Reuters Jefferies Commodity Index, climbing 91.5 percent.