* Tancredi returns to Allenberg as CEO six weeks after split
* Nicosia expected to remain with company, role unclear
* After months of defaults, critical moment for cotton market
NEW YORK, Oct 26 (Reuters) - Allenberg Cotton's long-time chief executive Joe Nicosia will be replaced by his former second in command, Anthony Tancredi, who is returning to run the world's biggest cotton merchant just six weeks after his shock departure, a source familiar with the situation said.
Nicosia, among the most well-known and influential figures in the clubby cotton market, leaves the top post at a time of unprecedented turmoil in the industry, with merchants still suffering the fallout from a wave of contractual defaults caused by months of extraordinary volatility in prices.
Tancredi will return to Allenberg on Nov. 5 and take over the day-to-day running of the company, the source said. Allenberg is owned by Louis Dreyfus Corp, one of the world's largest agricultural merchants.
Nicosia, a former Dreyfus grains trader who joined the cotton desk three decades ago, is expected to continue working at the company, but it is still not clear what his precise role will be. He currently runs the hedging desk.
``He's still going to be involved,'' said the source.
An official at Allenberg's Cordova, Tennessee, headquarters declined to comment.
Tancredi's return is as surprising as his departure in early September, an abrupt move that traders and rivals took as an indication that the ructions caused by last year's market upheaval are still reverberating.
It was not clear then why Tancredi, who had been Allenberg's president and long considered Nicosia's heir apparent, had left the firm, nor why he returns now.
While Nicosia was seen as Allenberg's dynamic public face, Tancredi is widely credited with helping transform the firm from a modest domestic merchant into a global powerhouse that claims to handle about a fifth of U.S. production.
Founded in 1921 just outside Memphis, the epicenter of U.S. cotton trading, it now has almost 300 employees.
Tancredi was key to the companys purchase of its closest domestic rival, Memphis cotton legend Dunavant Enterprises, in 2009 after that firm fell victim to the previous round of whipsaw market volatility, market participants said.
It is a particularly critical time for Allenberg, which is preparing to face a lawsuit leveled by former Glencore trader Mark Allen over the alleged manipulation of benchmark cotton futures prices last July.
The winter surge and spring slump in Intercontinental Exchange cotton futures in the first half of 2011 left Glencore with a loss of more than $300 million and ultimately cost Allen his job. Other big traders also reported heavy losses. Allenberg does not disclose its results.
Tancredi joined Louis Dreyfus in 1985, five years after Nicosia, who had been working in the firm's grain division. This was about the same time that Dreyfus teamed up with Allenberg, according to company websites.
(Editing by Bob Burgdorfer and Richard Chang)