Cotton futures fell 2 percent on Tuesday, after weaker-than-expected Chinese manufacturing data fed worries about slowing demand from the world's largest cotton consumer. The start of a Chinese cotton auction this week also pressured prices as investors sold on the first trading day of September, cashing in after prices rallied 8 percent last month.

Data showed slowing new orders weighed heavily on China's vast manufacturing sector in August - a sign that the pace of growth in the world's second-largest economy will weaken well into the third quarter and possibly beyond. "Of course there's another quarter to go, but it looks like this year China could come in under 7 percent growth ... the lowest since 1997," said Keith Brown, president of commodity firm Keith Brown and Co in Moultrie, Georgia.

The benchmark December cotton contract fell 1.58 cents or 2 percent to settle at 75.68 cents per lb, after dealing between 75.27 and 77.29 cents. The Chinese government offered 35,708 tonnes of cotton in the first day's auction, the China Cotton Association said on Monday.

"It was cotton that was sitting sequestered away and now it's cotton getting thrown into the marketplace. It only works to depress prices," said Sterling Smith, commodity strategist at Citibank's Institutional Client Group in Chicago. Still, non-commercial cotton dealers remain their most bullish since January, according to Friday's US Commodities Futures Trade Commission (CFTC). They added just over 3,000 lots to take their net long to 15,405 lots in the week to August 28.

But demand has been hit by weak retail sales due to a slack global economy as well as a switch by mills to using less-volatile synthetic fibres. "If you look at the fundamentals of cotton, we should be 4 cents from 50 cents, not 4 cents from 80 cents," Brown said.