NEW YORK, July 21: Cotton futures settled on Friday at a three-week low on speculative fund and options-linked sales as the market continued pulling back from a recent rally which hoisted values to a 3-1/2-year top, analysts said.

The New York Board of Trade's key December cotton contract dove 1.77 cents to conclude at 62.72 cents per lb, moving from 61.85 to 63.60 cents. It was the lowest close for the contract since late June.

March fell 1.52 to 65.97 cents. Back months lost from 1.30 to 1.55 cents.

The IntercontinentalExchange NYBOT electronic cotton market saw the December cotton contract fall 1.90 cents to 62.59 cents at 2:30 p.m. EDT (1830 GMT), moving from 61.84 to 64.80 cents.

That just goes to show we were up on a lot of air, said Sharon Johnson, cotton expert for First Capitol Group in Atlanta, Georgia.

She said that cotton prices may lose further ground and test 60 cents, basis key December, ahead of the release of the vital US Agriculture Department's monthly supply/demand report for August, the first in the 2007/08 marketing year (August/July).

The lower to mid 60's (cents) should be the dominant trading range for most of the remainder of the production season, said the weekly report by analyst O.A. Cleveland.

He added the recent sell-off amounted to a thorough house cleaning as most of the speculative funds took profits, as did the bullish option strategies earlier placed by the trade.

With December back near 62 cents mill demand should surface and export sales ... should be impressive, Cleveland concluded.

The market slipped below 62 cents late in the session, but ran into suspected trade and consumer buying to nudge it back to near 63 cents, dealers said.

Brokers Flanagan Trading Corp. sees support for the December contract at 63 cents, with resistance at 63.60 and 64.25 cents.

Open-outcry volume on Thursday stood at 7,172 lots while screen business reached 20,163 lots. Open interest in the cotton market was at 220,108 lots, down 385 lots from the previous session.---Reuters