Cotton futures in India, the world's second-largest producer, are expected to trade up this week on improved demand from mills and traders, while firm cues from the global market also seen aiding sentiment. However, a rise in local supplies and estimates of higher output could limit the upside.

Daily cotton supplies have improved to about 190,000 bales of 170 kg each across India as against 150,000-160,000 bales in the previous week, spot traders said.

Confirmation from the Chinese government that it has adjusted the formula for calculating import tariffs fuelled hopes that Beijing will not curb quotas for mills to buy foreign fibre. Chinese import policy will impact the Indian domestic prices as China is the top buyer of Indian raw cotton.

"Buying has increased as everyone is stocking cotton on hopes of better prices. A lot of traders are stocking their produce at the Chinese ports," said Arun Kumar Dalal, a trader from Ahmedabad, a key market in Gujarat. The January cotton contract rose 0.99 percent to 19,450 rupees per bale on the Multi Commodity Exchange at 0854 GMT.

In the spot market, the price of the most-traded domestic spot Shankar-6 variety was steady at 39,000 rupees per candy of 356 kg, data from the Cotton Association of India showed on Tuesday.

"Firm global prices and weak INR in addition to export demand has supported the spot prices," Kotak Commodities said in a research note.

The most-active March cotton contract on ICE Futures U.S. eased off two-month highs on Tuesday and ended five days of gains as merchants and farmers sold fibres and some speculative traders locked in profits. Global cotton prices have rally and now the technical charts show the target of 86 cents per pound, Kotak Commodities said.