* Rising open interest points to return of investor appetite
* All eyes on USDA monthly report on Friday
NEW YORK, Aug 7 (Reuters) - Cotton futures eased on Tuesday as producers sold into a two-day rally that had sent prices to 2-1/2-month highs after a month of rangebound trade.
The benchmark December cotton contract on ICE Futures U.S. eased 0.42 percent to settle at 75.40 cents per lb. Prices rose as high as 75.98 cents before selling pushed them lower.
Last week, encouraging export sales numbers and better-than-expected U.S. jobless data lifted prices from a range in the low 70 cents where they had languished for most of July.
The rising price lured some growers out to sell, albeit in low volumes, a textile mill source said.
Some market watchers attributed the latest rally to short covering. But the rise in open interest, a reflection of liquidity in the contract, also pointed to investor appetite.
The number of open commitments in the market has jumped 11 percent since the start of July, hitting a six-week high close to 182,000 contracts on Monday, Thomson Reuters data shows.
The market awaits a report on global supply and demand by the U.S. Agriculture Department on Friday, the first update for the 2012/13 season, which started on Aug. 1.
Brokers are bracing for a cut in the world-ending stock forecast due to disruptions in the harvest in India, the world's No. 2 producer, where a weak and delayed monsoon may limit output.
But demand has also taken a hit in China, the world's largest consumer of fibers.
While Beijing's strategic reserve is hoarding almost half the world-ending stocks from the 2011/12 year, the USDA has already cut its estimate for the country's usage to multi-year lows just under 40 million bales.
"The pessimism is consistent with the gloomy forecasts for anemic economic growth rates around the globe and particularly in China," said Sholom Sanik, analyst at Friedberg Mercantile Group in Toronto.
The U.S. drought - the worst in more than half a century - may prompt farmers to switch out of fibers and into soybeans to take advantage of soaring prices for the oilseed. This could reduce the U.S. cotton crop and cut into the market's surplus.
Profit taking dented corn and soybeans on Tuesday on forecasts for more rainfall in the U.S. Midwest farm belt, but the drought has pushed corn and soybeans sharply higher over the past month.
The euro rose, along with a broad range of financial markets, on hopes the European Central Bank will buy Spanish and Italian bonds to boost the euro zone economy.
Any stimulus would be positive for cotton, which has been hurt by weak global consumer spending and falling overall demand as mills switch to or increase their use of manmade fibers.
Fibers have lost market share to cheaper artificial raw materials after last year's wild gyrations in prices, which shot to above $2 per lb in March last year.
(Reporting by Josephine Mason; Editing by David Gregorio)
Source: http://www.reuters.com/article/2012/08/07/markets-cotton-idUSL2E8J7E4T20120807
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