UPDATE 1-Louis Dreyfus in marketing venture with Namoi Cotton

NEW YORK Jan 15 (Reuters) - Louis Dreyfus Commodities, the world's largest cotton merchant, has set up a joint venture with Namoi Cotton Co-operative Ltd to sell fiber produced by one of Australia's biggest co-operatives, Namoi said on Tuesday.

The move is a further sign that the unprecedented volatility in cotton prices over the past four years that caused widespread contract defaults continues to roil the market.

Namoi will continue to own and operate its ginning and cotton seed business, but the venture will take over Namoi's marketing and commodities packing assets.

Namoi will hold a 51-percent stake in the venture, with Dreyfus, one of the world's biggest agricultural traders, owning the remaining 49 percent.

The news comes after the co-op lost almost AU$70 million ($74 million) in its last financial year to end-February 2012 as textile mills reneged on sales contracts and borrowing costs increased due to wild swings in prices.