NEW YORK, Nov 17 (Reuters) - U.S. cotton futures ended
Wednesday near a 3-week low on investor sales sparked by news
No. 1 consumer China said it would fight what it calls illegal
price increases in markets like cotton, analysts said.

China's State Council, or cabinet, singled out markets such
as cotton where it vowed to intensify a crackdown on prices
speculation and punish those found hoarding commodities to push
up prices by illegal means.

Cotton has been hit hard by mounting fears that China may
take aggressive action to curb inflation running at a 25-month
high, raising interest rates or capping domestic prices with
measures that could crimp commodity demand or drain liquidity
from bubbling domestic markets.

'They (the Chinese) led us up and they are leading us
down,' Sharon Johnson, cotton specialist at First Capitol Group
in Atlanta, Georgia, said.

Cotton prices surged to their loftiest since the U.S. Civil
War in the 19th century last week, but has since lost nearly 20
percent in value in a sell-off in the commodity sector.

The benchmark March cotton contract on ICE Futures
U.S. fell 5.05 cents to close at $1.2415 per lb, its lowest
settlement in almost 3 weeks.

Volume traded was at 36,119 lots at 2:33 p.m. EST (1919
GMT), just under 2 percent below the 30-day average at 36,808
lots, Thomson Reuters preliminary data showed.

The U.S. cotton market is still the top performing
commodity on the Reuters Jefferies Commodity Index, up
almost 65 percent year to date.

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

Open interest in the U.S. cotton market sank to a 3-month
low as investors dumped positions during the commodity-wide
sell-off which began last week.

Graph on cotton open interest:
http://graphics.thomsonreuters.com/gfx1/AB_20101711101426.jpg

In China, the Zhengzhou Commodity Exchange's key May cotton
contract was last traded Wednesday at the session low
of 27,090 yuan per tonne, down 1,430 yuan on the day.

Analysts said the market may see further weakness as
players liquidate positions built up during cotton's four-month
long rally.

'It's not done to the downside,' said Lou Barbera, cotton
specialist in brokerage VIP Commodities.

The market will now be turning its attention to the U.S.
Agriculture Department's weekly export sales report this week
and next to confirm talk that up to 1.0 million (480-lb) bales
of U.S. cotton were sold at a recent industry meeting.