The cotton rally may have further to run, even after a bounce of 9% this week, as hot money is lured to a commodity for which, like cocoa and sugar, demand is significantly exceeding production, analysts have said.

A rebound in the number of open positions in New York cotton futures may be a sign that speculators are "again be interested in getting long in markets such as cotton that have bullish fundamentals and shrinking stocks", Terry Roggensack at analysis group Hightower said.

He was supported by William Adjadj, at Sucden Financial France, who said that while the the market may take a breather for next week's New Year holiday celebrations in China, the world's biggest cotton importer, "fundamentally, we continue to consider the market to be bullish".

Earlier in the week, Rabobank said support for higher cotton prices would "come from the need to alleviate the tight cotton global supply outlook as stocks are depleted, especially in the US, [while] demand from key import regions remains firm".

Ocean of capital

This week's rebound, following a 12% slump in prices in the first five weeks of 2010, was driven by huge adjustments to US Department of Agriculture estimates, attributed to the impact of a weaker market in driving demand from cotton mills.

The US market's stocks-to-use ratio - a key measure of market tightness, and thereby price expectations – would fall to 21.4%, its lowest for six years.

"Some traders are looking for the cotton market to drift sideways after this week's advance, but we are not so sure," Mr Roggensock said.

"There is a great deal of capital still sloshing around in the world, looking for solid investments."