Cotton prices touched their highest for more than two years, boosted by a deep cut to US estimates for world inventories of the commodity, which may be further dented by crop damage caused by Pakistan's flood.

New York's October cotton contract jumped 2.9% to 89.17 cents a pound, the highest for a spot contract since March 2008, before losing some ground to close at 87.52 cents a pound.

The better-traded December lot finished 0.8% higher at a three-month high of 84.18 cents a pound.

The increases reflected a continuing reaction to Thursday's slice of 4.3m bales, to 45.6m bales, in the US Department of Agriculture's estimate for world cotton inventories at the close of 2010-11, reflecting a big downgrade to historical estimates for China's stocks.

The revision reduced to a 16-year low of 38%, from a previous estimate of 42%, cotton's stocks-to-use ratio - a key measure of supply tightness which in turn has a big influence on prices.

"The report was very bullish for cotton," Jake Wetherall at Rabobank told Agrimoney.com.

Acreage battle

However, the yarn's buoyancy also reflected cotton's ranking among those crops competing for the attention of US farmers, who are seen as increasingly turning back to grains, given the rally in Chicago prices.

"We are starting to see wheat, cotton, corn and soybeans moving in tandem somewhat, because of the battle for acreage," Mr Wetherall said.

Cotton plantings in America, the world's top exporter of the commodity by a distance, slumped from 5.2m acres (2.1m hectares) before the 2007-08 grain price spike to 3.0m acres last season.

'Significant damage'

The yarn's price prospects have also been underpinned by the floods in Pakistan, which the United Nations on Friday said had directly affected 13.8m people, and destroyed or inundated nearly 700,000 hectares of standing crops.

Cotton - which is, with rice, Pakistan's main crop in the June-to-November "kharif" season - is seen as likely to have felt the brunt of the disaster.

The USDA said: "The preliminary assessment is that significant damage has occurred, particularly to the major cotton areas in Punjab and Sindh."

Pakistan is the smallest of the world's big four cotton-producing countries, with China, India and the US, and is the third-ranked consumer of the commodity.