ICE cotton jumped to a two-week high on Wednesday after China forecast its output will fall 12.3 percent this year as an early frost hurt yields in the world's top producer and consumer. The most-active March cotton contract on ICE Futures US gained 0.58 cent, or 0.7 percent, to settle at 78.14 cents a lb, near the contract's 10- and 14-day moving averages.

The benchmark touched a two-week high of 79.45 cents early in the day and pared gains steeply in the final hour of trade. The spot December contract closed down 0.25 cent, or 0.3 percent, at 75.63 cents per lb. Fibre tracked US stocks markets as the Dow Jones industrial average began to fade in the afternoon ahead of the release of minutes from last month's Federal Reserve meeting. The minutes showed the central bank is considering scaling back its huge fiscal stimulus program at one of its next few meetings.

Pressure came as speculators defended a net short position and on heavy liquidation of the December contract ahead of its first notice day later this week, traders said. China's output will drop 12.3 percent to 6.68 million tonnes this year because of early frosts and snow in the country's top growing region, according to the latest survey commissioned by the state reserves body. That production projection for about 30.7 million 480-lb bales is well below a US government forecast of 32.5 million bales for the 2013/14 crop year end-July.

Further adding support, China's domestic market rose as traders eyed a possible delay of an expected sale from Beijing's massive state reserves. "Not only does China have a shorter crop, but they have a poorer quality one. You've got several major countries with production issues," said Sharon Johnson, a cotton specialist at KCG Futures in Atlanta. Caterpillars are attacking crops in Brazil's main growing regions and rainfall in India has hampered harvesting in the world's No 2 producer. The gains came despite a continued climb in exchange inventories. ICE stocks climbed to 221,525 bales, the most since July, exchange data compiled by Reuters showed.