NEW YORK, Nov 12 (Reuters) - U.S. cotton futures slid for a
third day in row on Friday as lower Chinese cotton values and a
sharp rise in U.S. margin rates took their toll, possibly
ending the market's four-month-long rally, analysts said.

Cotton prices had rallied since July and scaled levels this
week unseen since the U.S. Civil War in the 19th century.
The benchmark March cotton contract on ICE Futures
U.S. fell the 5-cent trading limit to $1.3418 per lb. The
session high was $1.3655.

Despite the massive sell-off, the U.S. cotton market on ICE
Futures U.S. was still the top performing commodity on the
Reuters Jefferies Commodity Index, having risen more
than 75 percent year to date.

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

Bill Raffety of commodity brokerage Penson Futures said
cotton suffered because of news of weaker Chinese prices, a
requirement by banks to increase their reserve funds, and fears
of an interest rate hike in China.

'That's why you've got additional selling coming in,' he
said.

The Zhengzhou Commodity Exchange's May cotton contract was
last traded Friday at a session low 29,290 yuan per
tonne, down 2,380 yuan on the day. On Thursday, the contract
had lost 1,650 yuan.

'(Speculative) capital has been withdrawn from the market.

Without the capital support, the price is now more in line with
physical prices,' said Yang Guoqi, an analyst with Jinshi
Futures Co Ltd.

China's Central Bank ordered banks to set aside more money
as required reserves, a tightening step that mops up some of
the cash that has been flowing into commodities markets and
posing a growing inflationary threat.

A major factor in the U.S. market weakening was the nearly
30 percent increase in cotton margins since Oct. 26 by ICE
Futures U.S. This brought cotton margins to their highest level
since 1996.

'The table's got too expensive,' said Sharon Johnson,
cotton expert at First Capitol Group in Atlanta, Georgia.
She said the spike in margin rates would discourage fresh
business from coming into the cotton market and force many
investors to cash in their gains.