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UPDATE 1-Cotton falls to 3-1/2-year low as U.S.-China trade war worries intensify

Sethuraman N R

intensify@ (Adds analysts comment, updates prices)

Aug 5 (Reuters) - ICE cotton futures slid more than 3% on Monday to their lowest in nearly three-and-a-half years on fears that increasing trade tensions between the United States and China will worsen demand for the natural fiber.

The most-active cotton contract on ICE Futures U.S., the second-month December contract , fell as much as over 3 percent earlier in the session. Last, it was down 0.89 cent, or 1.50 %, at 58.53 cents per lb as of 1:09 p.m. EDT (1709 GMT).

The contract touched its lowest since March 2016 at 57.26 cents a lb.

U.S. President Donald Trump said last week that he would slap an extra 10% tariff on $300 billion worth of Chinese imports and would raise it further if trade talks do not progress.

Cotton has fallen more than 8% since Aug. 1 and over 20% so far this year owing to a long-drawn trade war between the world's top consumer of the fiber, China, and one of the biggest producers, the United States.

"The markets reacted to news that China was suspending imports of U.S. agricultural products. But, nothing has changed really. They have not been buying cotton from us," said Jobe Moss, a broker with MCM Inc in Lubbock, Texas.

"There is no demand (for cotton). There is a lot of yarn around. Until the textile industry picks up, it's very difficult to build a case for cotton."

Chinese firms have suspended purchasing U.S. agricultural products, according to the state media.

China had bought 25,000 tonnes of cotton from the United States between July 19 and Aug. 2, state broadcaster CCTV reported, citing an official.

"The price response is likely related to the escalation in the U.S.-Chinese trade conflict as China is a major supplier of cotton textiles to the U.S," Commerzbank analysts said in a note.

"These textiles could be affected by the new U.S. punitive tariffs and as such would no longer be in demand. Chinese cotton demand on the world market would then likely decrease accordingly," the note said.

Total futures market volume fell by 9,265 to 38,551 lots. Data showed total open interest gained 3,577 to 201,945 contracts in the previous session.

Certificated cotton stocks <CERT-COT-STX> deliverable as of Aug. 2, totaled 28,823 480-lb bales, unchanged from 28,823 in the previous session. (Reporting by Nallur Sethuraman in Bengaluru; editing by Grant McCool)