NEW YORK, Oct 21 (Reuters) - U.S. cotton futures rose the
daily limit on Friday on fund and investment buying after
storms ripped through the key growing state of Texas late last
night, analysts said.

Hail and heavy rain hit Texas, which harvests about half of
the U.S. cotton crop, igniting a renewed round of speculative
fund and investment buying on uncertainty over how much damage
the storms may have caused to the crop.

The Weather Channel said hail hit Texas and up to two
inches of rain fell in Lubbock, Texas, in the heart of the U.S.
cotton belt.

ICE Futures U.S. key December cotton contract
increased the 4.00 cent limit to close at $1.1971 per lb. The
session low was at $1.1525. It was the third consecutive day of
gains for cotton, having topped out last week at the record top
of $1.198.

Volume traded in the cotton market stood at 21,430 lots,
about 6.0 percent below the 30-day average at 22,794 lots,
preliminary Thomson Reuters data showed.

'It's an emotional reaction to the storms in Texas,' Mike
Stevens, an independent cotton analyst in Louisiana, said of
the market's limit up move.

Sharon Johnson, cotton expert at First Capitol Group in
Georgia, said there was 'uncertainty regarding damage to West
Texas fields after a severe storm moved through overnight' and
along with Chinese mill buying, stoked Friday's cotton rally.

The market's technical outlook though indicates it has
moved into overbought ground. (Graphic:
http://link.reuters.com/qab89p )

The weekly CFTC report showed noncommercials' net long
position as of Oct. 19 rising to 35,362 lots from 35,020 lots
net long in the preceding report. Managed money accounts' net
long slipped to 43,645 lots from 44,026 lots.
The net short of producers, merchants and other reportables
fell to 81,973 lots, from a net short of 88,041 lots, the CFTC
said.

Stevens said fears of damage to the cotton crop in Texas
ranged from around 50,000 to 400,000 (480-lb) bales.
Johnson said in a report commercial sources pegged damage
would be limited to 'those fields where cotton is strung out of
the boll due to wind/hail.'

'Estimated losses are fairly small, 25,000-50,000 bales (if
that) from a crop that was estimated at 8.9 mln bales for the
state (per the U.S. Agriculture Department) as of Oct. 1,'
Johnson said in a report. The U.S. 2010/11 cotton crop was seen
by the USDA reaching 18.87 million bales.

Cotton prices on the ICE Futures U.S. exchange soared last
week to a level that the Mississippi Historical Society said
was last seen during the U.S. Civil War from 1861 to 1865.
The market has rallied since July due to tight stocks and
strong cotton demand, especially from world No. 1 producer and
consumer China.

Investment funds have flooded into cotton because they feel
it was undervalued and is the next big thing in commodities.
In China, the Zhengzhou Commodity Exchange's May cotton
futures was last traded at 25,145 yuan per tonne, up
260 yuan from its previous close.

Fundamentally, any losses to the U.S. crop could lead to a
further squeeze in available supplies and trades said this may
drive prices higher as a result.

'This is not what cotton wanted to see at this time,' said
Sterling Smith, an analyst for brokers Country Hedging Inc. in
Minnesota.

On Thursday, a Thomson Reuters survey of Chinese analysts
expect the country's cotton production in 2010/11 to reach 6.45
million tonnes, sharply below the USDA estimate of 6.976
million tonnes.

Analysts' views were further bolstered by influential
industry publication Cotlook, which which cut China's 2010/11
cotton production forecast to 6.4 million tonnes on Thursday.

On the other hand, analysts said the market should begin to
see some pressure next week when investment funds begin to roll
their positions forward out of the spot December contract as it
gets ready for first notice day in deliveries next month.