* China, U.S. cotton contracts rise by daily limit
* Speculators blamed for pushing up prices

BEIJING, Feb 28 - Chinese and U.S. cotton futures hit their upward trading limits on Monday, with speculators blamed at least in part for driving up prices that were already rising because of low supply and high demand.

China's benchmark Zhengzhou cotton futures rose 7 percent to touch the daily trading limit of 32,435 yuan per tonne.

"We believe the price has been pushed up by (speculative) funds. For the physical market, both cotton and yarn prices have not changed that much or are even slightly down," said Dong Shuangwei, an analyst with Beijing Capital Futures.

Dong said prices at around 30,000 yuan per tonne reflected production costs.

"Overall cotton supply is still tight, but today's rise does not reflect fundamentals. It's because of short-term funds."

Earlier, China's National Bureau of Statistics confirmed China's cotton output fell 6.3 percent in 2010 to 5.97 million tonnes. But the decline was largely expected, having been forecast by an industry body and trailed by a previous, albeit smaller, estimate of falling output.

Cotton acreage fell to 4.85 million hectares in 2010 from 4.95 million tonnes the previous year, the Bureau said.

The Chinese contract's daily limit rise followed a similar jump in the benchmark U.S. contract which rose by its 7 cent daily limit in Asian trading earlier on Monday, after another limit-up in late trading on Friday.

"I think this is due to a rebound in global equity markets, as we can see that the Asian markets are recovering from losses. Cotton prices usually move in step with equity markets," said Ker Chung Yang, an analyst at Phillip Futures in Singapore.

"The USDA is also forecasting a substantial jump in China's cotton imports. Also, there was news that China's cotton output fell by 6 percent in 2010, all these factors are driving prices higher."

 

 

source:Reuters