Jan 15 (Reuters) - Cotton futures rose in New York for a third straight day on Wednesday ahead of the release of weekly export numbers, as funds bet inventories of the fiber were not as high as U.S. government estimates, traders said.

The most-active March cotton contract on ICE Futures U.S. rose 1.3 percent, or 1.06 cents, to settle at 84.79 cents a lb after hitting a one-week high at 84.89 cents.

The contract has risen 2.7 percent over the past three sessions, from a two-week low hit last Friday after the release of the U.S. Department of Agriculture's monthly cotton outlook.

The next data awaited by the market are weekly export numbers for U.S. cotton, due on Thursday.

"What we've seen this whole week and for some time now is fund buying," said Jobe Moss at Moss Capital Management, a cotton trader in Lubbock, Texas.

"I'm certainly not long cotton now as it's overpriced for me. The upside could be another 3 cents but the downside risk could be as much 20 cents."

Cotton was one the largest gainers among commodities in 2013, rising 13 percent mostly on worries about inclement crop weather in the United States last year.

In Friday's report, the USDA raised production estimates on cotton for a fifth time since its first outlook for the 2013/14 crop in May.

It projected global cotton inventories to reach a record 97.6 million 480-lb bales by the end of July, citing surprise increases in both U.S. and Chinese output.

The data was greeted with skepticism in the market, after last year's drought cut deeply into U.S. production and Chinese farmers planned this year to slash their cotton acreages by 9 percent.

March cotton swung 2.5 cents from Friday's low to Wednesday's high as funds went long on the market due to disbelief in the USDA data. (Editing by Meredith Mazzilli)