* U.S. cotton surges after early slow dealings

 * Zhengzhou cotton opens limit-down, but recovers
 (Recasts, updates prices, market activity to U.S. close)

 By Rene Pastor

 NEW YORK/SINGAPORE, Oct 18 (Reuters) - U.S. cotton futures
charged to a strong close on Monday, as speculative funds,
mills and commercial users resumed buying after the market
finished Friday down its daily limit.

 U.S. cotton futures jumped last Friday to their highest
level since the U.S. Civil War in the 19th century, then fell
in late trade to end the session down the daily limit.

 Cotton remains up nearly 65 percent since late July, and
some mills had been waiting for prices to break off their
all-time high. When that happened on Friday and Monday, the
mills jumped into the market. Prices jumped back up as
speculative funds joined in the buying.

 Many fund managers are still bullish on cotton, feeling the
market could stage another rally in the coming weeks because of
strong fundamentals. Consumer demand for the fiber has remained
strong while global supplies have tightened due to regional
crop weather problems such as flooding in Pakistan and China.

 In U.S. trade, the key ICE Futures U.S. December cotton
contract CTZ0 climbed 3.50 cents to finish at $1.1346 per lb,
just below the session peak at $1.1377.

 Volume traded in the U.S. cotton market was around 23,000
lots, about 7.0 percent above the 30-day average at 21,000
lots, preliminary Thomson Reuters data showed.

 Before U.S. markets opened, cotton futures in China fell
the daily limit in early trade, chasing Friday's sharp falls in
the U.S. market. The sharp drop that took cotton prices on ICE
Futures down the daily trading limit on Friday occurred after
Chinese markets had closed.

 But Chinese cotton futures pared losses when the sell-off
did not spread in early U.S. trade. Zhengshoul's cotton futures
for May delivery CCFK1 touched their downside limit at 23,330
yuan early, then recovered to settle at 23,695 yuan per tonne,
down 610 yuan on the day. It was last traded at 23,750 yuan.

 On Friday, ICE U.S. December cotton hit a record peak at
$1.198 before ending the 5.00-cents daily limit down at
$1.0987.

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 Graphic of U.S. and Chinese cotton markets:

 link.reuters.com/zet88p

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 Cotton has gained nearly 65 percent since late July due to
tight stocks, strong demand from mills in No. 1 consumer China,
and buying by investment, hedge and long-only funds who viewed
the market as undervalued.

 Cotton futures, according to the Mississippi Historical
Society, are trading at their highest level since the Civil War
when an export ban by the embattled Confederacy drove prices to
as high as $1.89 per lb.

 Fundamentally, analysts said the cotton market is still
seeing strong consumer demand from China and a supply/demand
situation that has driven cotton ending stocks to their lowest
level since 1995.

 "The bullish issues in cotton haven't really gone away,"
said Bill Nelson, an analyst at Doane Advisory Services in St.
Louis, Missouri.

 Peng Juan, an analyst with International Futures Co. Ltd.
in Shenzhen, said Chinese cotton prices will likely rise again
because "the harvest has been delayed, which means new cotton
supply in the short-term would remain tight and futures prices
would be supported by strong physical prices."

 Volume was brisk in China's cotton market, with around 1.9
million lots traded on Monday, equivalent to almost 10 million
tonnes.

 China's cotton harvest has been delayed for over two weeks
and cotton mills are also reluctant to sell more to the market,
she said.