NEW YORK, Jan 1: Cotton futures settled Wednesday at a two-month top on investor buying before a holiday break and the surge may spill over into the early part of 2009, brokers said.

The cotton market will be shut Thursday for New Year, with business resuming on Friday.

The key March cotton contract increased 1.05 cents to end at 49.02 cents per lb, after moving from 47.81 to 49.30 cents. It was the highest close for cotton since late October when it was trading around 49 cents.

Volume traded in hte March contract was at 5,268 lots at 3:00 p.m. EST (2000 GMT).

We have a technical rally going, said Keith Brown, president of commodity firm Keith Brown and Co. in Moultrie, Georgia.

He said weakness in fiber contracts still may hit the market next year, but the rally may have legs to push prices toward 55 cents, basis the spot month.

Analysts said news that 47,419 (480-lb) bales were decertified by ICE Futures US contributed to the rally because it may indicate a major merchant has a destination for the cotton.

Traders said the market will turn its immediate focus to the weekly export sales report being released on Friday by the US Agriculture Department.

Total US cotton sales in the USDA data are seen ranging from 100,000 to 250,000 running bales (RBs, 500-lbs each), against sales last week at 119,000 RBs.

One broker, pointing to the year-end holidays, believes sales could be as low as 75,000 RBs.

Brokers said U.S. cotton export shipments should hit around 200,000 RBs, from 211,100 RBs in last week’s report.Brokers Flanagan Trading Corp. sees support in the March contract at 48.95 and 48 cents, with resistance pegged at 49.75 and 50.65 cents.

Volume traded Tuesday reached 9,246 lots, exchange data showed. Open interest in the cotton market hit 125,564 lots as of Dec. 30, from the previous 124,265 lots, it said.—Reuters