Cotton slides, but posts 10.5 pct monthly rise in January

* Cotton slides on low U.S. export data, China cancellations

* Cotton posts biggest monthly gain among commods in CRB index

* Market watchers say 10.5 pct monthly gain signals bull market

NEW YORK, Jan 31 (Reuters) - Cotton futures slid on Thursday after U.S. government sales data revealed cancellations in orders from China, as a 10.5 percent rise in prices for the month of January discouraged buyers in the world's largest textile market.

The drop in export sales sank cotton prices in early trade, but buyers stepped in to lift prices off session lows. Speculative buying this month has pushed cotton in January to its biggest monthly gain in almost two years.

"Cotton is under its own power despite the poor export data. We're doing it without help from other markets," said Sharon Johnson, cotton specialist at Knight Capital.

The most-active March contract on ICE Futures U.S. slid 0.01 cent, or 0.01 percent, to settle at 82.95 cents per lb, rebounding from a low of $82.08 cents per lb that followed news of lower U.S. export sales and abandoned deals from China.

Weekly U.S. data showed 131,300 running bales were sold in the week to Thursday, a stark decrease from 213,700 bales reported during the previous week.

Most had expected a drop in buying interest after the rally in prices to as high as 84 cents a week ago. Cotton has risen 10 out of the past 12 sessions.

But some were alarmed that the data included 11,100 canceled bales by Chinese buyers, the first time they have rejected deals since mid-July.

"We sacrificed some export sales because of the price rally. On some level, we were expecting to see poor numbers relative to where we'd been in previous weeks," said Johnson.

Thursday's volume was on par with the 30-day average which has been buoyed by the massive inflow of speculative month, according to preliminary Thomson Reuters data.

STELLAR JANUARY

The day's decline followed four weeks in which cotton posted by far the biggest gain among the 19 commodities tracked by the Thomson Reuters-Jefferies CRB index, a global benchmark for commodities.

The monthly 10.5 percent rise was the steepest monthly gain since February 2011, when cotton prices surged about 16 percent. Prices peaked at over $2.20 per lb a month later, their highest levels since the U.S. Civil War in the 1860s.

The increase means cotton has clawED back more than half of the 17-percent decline cotton futures saw last year, but it is still a long way from the record highs.

In 2011, speculators were behind the 18-month surge to records in 2011, but concerns about a shortage of supplies due to robust Chinese demand and after a severe drought in Texas, the United States' main growing state, were the driving force.

This time round, the rally has been largely due to inflows from hedge fund and other speculative investors, who see an opportunity to big returns after two years of double-digit percentage falls in prices.

"It gets back to the old maxim that a market that won't go down on bearish news is not a bearish market," Keith Brown, who heads commodities broker Keith Brown and Co. in Moultrie, Georgia.

(Reporting By Chris Prentice; Editing by David Gregorio)