* Front-month prices notch biggest weekly gain since June
* Weekly volume soars, more typical of larger sugar contract
* Market moves into backwardation on nearby supply concerns
NEW YORK, Oct 19 U.S. cotton futures closed
lower on Friday on profit taking after rallying on Thursday to
five-month highs when trade and speculative shorts covered
positions amid fears about a U.S. supply shortage.
The most-actively traded December cotton contract on ICE
Futures U.S. fell 0.84 cent to settle at 76.88 cents
after hitting its highest level since May on Thursday and rising
over 12 percent since Oct. 11.
Prices gained over 7 percent on the week, the market's
biggest rise since mid-June.
This week's supply concerns were triggered by signs from
early harvesting in the southeastern United States that some
crops had high levels of "micronaire", or coarse fibers that
could break during the spinning process at textile mills.
The gains came even as the market expects a record global
surplus in the marketing year to end of July. Only U.S. cotton
is deliverable at the exchange.
Reflecting the covering, the latest data released on Friday
showed hedge funds and other speculative investors switched to a
net long position in the week to Oct. 16. They
had been short for the two prior weeks.
The perception of a nearby supply squeeze also kept the
market in backwardation for a fourth session, with December 1.86
cents above March on Friday.
Trading activity and liquidity shot up, with combined
volumes over three days to Thursday almost hitting 190,000 lots.
That is about four times higher than average levels and more
typical of sugar, ICE's largest softs contract.
"The past week also caught the eye of traders that had moved
away from cotton looking for the next big play. They may not
have come back to cotton yet, but they will if the volatility is
maintained," said Sharon Johnson, cotton specialist at Knight
Futures in Atlanta, Georgia.
Open interest, the number of outstanding contracts and a
measure of a market's liquidity, hit June highs above 200,000
In June, prices and trading volume took off due to short
covering ahead of the expiry of the July contract.
(Reporting by Josephine Mason; Editing by Bob Burgdorfer)