Cotton prices closed above 80 cents a pound for the first time in seven months despite doubts over the sustainability of the rally in the fibre, with Australia & New Zealand Bank restating a "sell" recommendation.

New York cotton futures for March delivery closed up 0.7% at 80.48 cents a pound, the best close for spot contract since June, and its eighth rise in the last nine sessions.

The gains, amid some improved ideas on both cotton's technical and fundamental pictures, represented a recovery from early losses, amid a debate among brokers over the sustainability of the rally.

ANZ took a negative stance, warning over "subdued" consumption growth, and the prospect of China ending its state stockpiling programme, which has been undertaken at prices above those on international markets.

The bank's outlook compared with somewhat more upbeat comments from Standard Chartered, besides a forecast from leading broker Keith Brown, of US-based Keith Brown & Co, that New York's May contract could hit 90 cents a pound, a gain of more than 10 cents from current levels.

'Demand could fall sharply'

"China has indirectly supported global prices since October through its government procurement programme, but this accumulation phase will have ended by March," ANZ ag commodity strategist Victor Thianpiriya said.

With China having stockpiled some 10m tonnes of the fibre, a year's supply, Mr Thianpiriya flagged the "risk that China's demand for imported cotton could fall sharply at some point in 2013".

Cotton was likely to trade at 70-80 cent a pound for the rest of the year, with rallies towards the top end of this trading range "a selling opportunity".

Indeed, ANZ forecast selling cotton through an options spread, of put contracts funded by an out-of-the-money call option.

'Strong ripple effect'

Standard Chartered voiced more upbeat sentiments on Chinese demand, saying this should rise this year, "underpinned by our expectations of an improvement" in China's economic growth, which the bank believes bottomed out around September-October.

"The increase in demand from China is already having a strong ripple effect," StanChart analyst Abah Ofon said.

"Reports on the ground indicate that yarn makers in Bangladesh and Pakistan are buying significant amounts of Indian cotton to meet higher import orders from China as textile mills look to blend cheaper imported yarn with old cotton stocks bought at higher prices."

Furthermore, China was contributing to higher US exports too, which hit 339,000 running bales in the latest week, to January 10, up 36% from the previous four-week average.

'Supportive fundamentals'

"The rally in cotton prices is largely in line with our bullish view on the market," said Mr Ofon, who in early December forecast a rise in values.

"We continue to believe that fundamentals in 2013 will contrast sharply with those in 2012 and be supportive of the market," particularly with global cotton sowing expected to drop too in response to prices which remain at one-third of the record high reached in 2011."

However, the bank stuck with a view of prices averaging 75 cents a pound in the current quarter.

"We remain cautious in the short term about [prices] until we can see further evidence of a sustained increase in demand," Mr Ofon said.