Cotton knocked lower by stronger dollar, export sales data
* Dollar gains on better-than-expected jobs data
* Export sales drop 40 pct vs a week earlier
* Certified stocks drop for second session
* Brazil looks to import fiber
NEW YORK, July 5 (Reuters) - ICE cotton dropped on Friday as a stronger dollar knocked many commodities lower and the market digested data that showed export sales continue to slow.
The most-active December cotton contract on ICE Futures U.S. closed down 0.71 cent, or 0.82 percent, at 85.03 cents a lb.
The U.S. dollar rose to a six-week peak against the euro as better-than-expected jobs data reinforced expectations that the Federal Reserve could begin scaling back its asset purchases as early as September.
That knocked the wider commodities market lower. The Thomson Reuters-Jefferies CRB index closed down 0.4 percent. A strong dollar makes commodities priced in U.S. currency more expensive for holders of other currencies.
Dealers also digested weekly export data that showed sales for the world's largest cotton exporter fell 40 percent in the week to June 27 to 34,500 bales.
That is almost half the total of just under 70,000 in the week to June 13.
Technically though, the market is lacking direction. The December contract is right in the middle of a five-month trading range, with important short- and long-term moving averages converging just above 85 cents.
"The market has no momentum whatsoever and it will take some force to jolt it out of this sideways trend," said Peter Egli, director of risk management at Plexus Cotton Ltd, a British-based medium-sized merchant.
Downside in prices should be limited by falling inventory as the current season to end-July nears completion, analysts say.
Exchange stocks fell another 15,000 bales to 597,980 bales after falling for the first time in almost a month on Wednesday.
While that is close to three-year highs, traders say much of it is tied up in committed sales, leaving little surplus U.S. grown cotton in circulation ahead of the harvest in December.
"Given the low availability of cash cotton and the fact that the U.S. crop is late this year, we feel that the odds are slightly in favor of higher prices as we head into late summer and fall," Egli said.
"December seems to be a dangerous month to be short."
In a further sign of a potential tightening of global supplies, the president of Brazil's growers' association said the country will need to import some 200,000 tonnes of cotton by the end of the year to meet the rising needs of the local textile industry.
The country imported just 3,500 tonnes of cotton last year after two consecutive seasons of large crops boosted local supply. The country is usually the world's No. 3 exporter.
While the market is facing a record surplus above 80 million 480-lb bales this season, more than half of that total is held in China's strategic reserve.
The market is awaiting news from China, where textile mills have lobbied Beijing to allow them to import more cotton as they struggle to source high-grade fiber locally.
The U.S. Department of Agriculture will release its monthly crop report next Thursday. (Reporting by Josephine Mason; Editing by Peter Galloway)