(Corrects 3rd paragraph to highest price since March 30, 2012, not April; the error first occurred in UPDATE 1)
* China expected to issue extra import quotas for struggling textile mills
* Cotton up more than 20 percent in 2013
* Short-covering seen boosting prices
NEW YORK, March 15 (Reuters) - Cotton rallied to fresh 11-month highs on Friday on fund buying and trade short-covering after expectations that No. 1 textile market China will issue additional import licenses lifted hopes of continued robust demand.
The most-active May cotton contract on ICE Futures U.S. was up 1.7 cents, or 1.87 percent, at 92.56 cents per pound at 11:27 a.m. EDT (1527 GMT). Earlier it climbed as high as 93.93 cents and was on track for its biggest gain since mid-November.
It was the front-month contract's highest price since March 30, 2012.
U.S. merchants and growers have said physical supplies of cotton are tightening, underpinning the futures market. Recent U.S. weekly export data has shown that mills have continued buying even in the face of rising prices.
Cotton has surged more than 20 percent since the start of the year, following two years of losses as high prices prompted mills to turn to lower-priced, manmade alternatives, and global stockpiles grew.
China, the world's top consumer of cotton, is expected to issue extra cotton import quotas to textile mills by around April as supplies tighten.
Additional import quotas would help struggling textile mills to buy fiber duty-free from abroad. The United States is the world's largest exporter, and so the move would help support New York cotton prices.
"In order to get enough cotton that can be used for manufacturing, they will need to import more," said Sterling Smith, futures specialist with Citigroup in Chicago.
Even amid that steady consumption, the world is likely to see a record global surplus by the end of the 2012/13 crop year through July, according to U.S. Department of Agriculture projections.
More than half of the surplus is expected to become part of Chinese stockpiles and is seen as unavailable to the global marketplace.
Beijing began building its reserves in 2011, paying above global prices to support farmers.
Now the world's largest fiber consumer is expected to have enough cotton in its stocks by the end of July to feed demand for more than a year, although there are questions about the quality of any cotton that has been held in warehouses for two years.
Concern remains that the recent price surge, if it is sustained, will prompt reneging on sales that have been booked but not yet shipped.
"If we are a looking at a top (to prices) this week, the mills will still come in to buy," said Knight Capital cotton specialist Sharon Johnson. "But if things don't change and we continue like this, you're going to have some cancellations."
As prices climbed on Friday, automatic buy stops were triggered at the 92.75 and 93 cent levels, spurring prices higher, Citigroup's Smith said.
Cotton has rallied recently as speculators increased their net long positions in cotton futures and options to the highest levels since September 2010.
As speculators boosted their bullish bets, commercial dealers have increased a large net short position in kind. With prices showing little sign of flagging, members of the trade may be forced to cover their short positions, thus exposing the market to short-covering rallies.
Open interest has been on the rise, climbing to 211,713 contracts on Thursday, according to ICE data.
That is near a high of 214,167 contracts reached last month, the most since February 2011, not long before cotton prices peaked at more than $2.2 per lb, their highest since the U.S. Civil War. (Reporting by Chris Prentice; Editing by Gerald E. McCormick, Nick Zieminski and Lisa Von Ahn)