* Fiber posts biggest one-day loss in seven months
* Spot prices down more than 13 percent
* Fall past technical support prompts automatic selling - trader
NEW YORK, April 24 ICE cotton fell to a fresh two-month low on Wednesday, recording its biggest one-day loss since September, as investors continued to liquidate their positions and take the wind out of a speculator-driven rally that pushed prices to one-year highs last month.
The most-active July cotton contract on ICE Futures U.S. dropped 2.15 cents, or 2.5 percent, to settle at 82.95 cents a lb.
The spot May contract closed down 1.58 cents, or 1.9 percent, at 81.10 cents a lb, down more than 13 percent from a high of 93.93 cents a lb reached on March 15.
As prices sank, automatic sell stop orders were triggered and July prices fell as low as 82.84 cents a lb, the second-month contract's lowest price since late February.
"That's where the sell stops live. The market has been trying to find support and catch itself, but we're on the defensive," said Ron Lawson, a partner at commodity investment firm LOGIC Advisors, pointing to technical support near 82 cents a lb.
Open interest totaled 170,556 contracts on Tuesday, having fallen for each of the last eight sessions.
Speculators have slashed a large bullish position in cotton futures and options to the lowest price since late January, U.S. government data showed on Friday.
The noncommercial dealers boosted their position to a five-year high in March, helping drive a first-quarter gain of 18 percent. As they liquidated their positions, cotton's upward momentum stalled and prices have fallen steeply.
"The commodities exodus spooked a lot of the longs," said Peter Egli, director of risk management for Plexus Cotton Ltd, a British-based medium-sized merchant.
The Thomson Reuters-Jefferies CRB, a benchmark for global commodities, posted its largely weekly drop since June last week.
Some 122 contracts, or about 12,000 bales, were set to be delivered against the May futures contract as of the first notice day of delivery on Wednesday, according to ICE data.
Between that small delivery and just 894 contracts of open interest remaining in the contract before its expiry on May 8, no more than about 100,000 bales of cotton, at most, could be pulled from exchange stocks for May delivery, Egli noted.
Though the May/July spread narrowed by 1.85 cents a lb from 2.42 cents previously, July cotton still holds enough premium that merchants can afford the holding costs needed to maintain ownership of cotton, dealers said.
Certified stocks totaled 505,159 bales on Tuesday, according to ICE data, continuing their climb to the highest level since June 2010.
Mills held off buying into a falling market and continued to purchase in a hand-to-mouth pattern, lending little support to falling prices, traders said.
Still, dealers said they export strong export levels to continue, even with China and India, the world's largest producers, selling out of state reserves.
Solid demand and a sense of tightening global supplies outside of China underpinned cotton's rally earlier this year, traders said.
More than half of a projected record global surplus by the end of the crop year through July is expected to become part of China's inventories and is considered unavailable to the global marketplace.
Beijing began building its reserves, paying above global prices to support farmers.
The world's largest textile market is forecast to hold enough cotton in its inventories to feed fiber demand for more than a year, and the country plans to continue its stockpiling program this year. (Reporting by Chris Prentice; editing by John Wallace)