NY cotton recovers slightly after USDA report sent it lower

* USDA report most bearish since 1970s - Knight Futures

* Open interest hits mid-June highs on short selling

NEW YORK, Oct 12 (Reuters) - Cotton futures in New York werehigher on Friday tentatively recovering some ground lost onThursday when the U.S. government published what some traderssaid was the bleakest crop report in decades.

Traders see little to support prices though, with a recordsurplus expected in the marketing year to end-July 2013 and U.S.producers preparing to sell their crops ahead of the harvest.

ICE's most-actively traded December futures contract

settled at 71.36 cents a lb, up 0.65 cent, or 0.9 percent,partially offsetting the almost 2-percent drop a day earlier.Prices were little changed on the week, having dropped 0.2percent.

Volumes were low, with just 15,533 lots traded on the day,as growers sat on the sidelines hoping for a prices to rallyeven as speculative investors continue to build a net shortposition.

"We've got producers who need to do some selling, but areholding out," said a trader.

The rise in open interest this week - hitting levels lastseen in mid-June - signaled further short selling by speculativeinvestors, traders said.

Open interest, representing the number of outstandingcontracts, rose to over 195,000 lots on Thursday, up 3 percentsince last Friday.

Hedge funds and specs switched to a net short futures andoptions position last week, betting on lower prices ahead of theNorthern Hemisphere harvest.

The market also showed resilience to U.S. weekly data thatrevealed export sales of upland cotton totaled 121,000 runningbales, half the previous week and 45 percent below the priorfour-week average.

That cemented concerns about plunging demand, particularlyfrom China, the world's largest textile market, after the U.S.Department of Agriculture raised its 2012/13 global inventoryforecast by 3.4 percent to a record of 79.11 million 480-lbbales.

Thursday's report was the government's most bearish sincethe 1970s, said Sharon Johnson, a cotton specialist at KnightFutures in Atlanta, Georgia.

It was also the USDA's third monthly increase since the newmarketing season started on Aug. 1 and the highest since recordsbegan in 1960. The new total would also represent a 14-percentjump from 2011/12's 69.56 million bales.

(Reporting By Josephine Mason; Editing by Bob Burgdorfer)

(([e-mail]))

Keywords: MARKETS COTTON/