Feb 8 - Governments should provide more reliable data on world cotton stocks and use, market participants said at a panel discussion on Tuesday, eschewing suggestions of interventions to help ease the pain of soaring prices.

Cotton prices surged to record levels last week, prompting calls for limits on speculators or new types of government fixes. But most traders and government representatives at a seminar convened by an international advisory group urged a moderate approach.

World cotton prices have risen 134 percent since the start of the season, the International Cotton Advisory Committee said, noting increased buying by speculative funds was not to blame for the climb.

"There is strong demand and shortage of cotton that caused prices to go higher," said Andrei Guichounts, an economist with the ICAC, an association of governments from major cotton
producing and consuming countries, which will hold a seminar in China in June on market data.

WHY SO VOLATILE?

Of 53 commodities spanning energy, metals and agriculture, cotton was been the most volatile in 2010, said Alejandro Plastina, an analyst with ICAC. Speculation by funds overwhelmed the cotton market in 2008, but the situation this year is different, said ICAC and others at the event, which comes as world regulators are seeking ways to rein in speculators in soaring commodity markets.

"What's happening right now can't really be attributed to speculators or index funds or hedge funds," said Joe O'Neill, an independent trader who is chairman of IntercontinentalExchange Inc's cotton committee.

The economic crisis has slashed demand -- and then plantings -- of cotton, but demand from China remained surprisingly strong. "I think we all assumed that when we were in the recession, that mill use would decline worldwide. Nobody expected Chinese mill use to increase," O'Neill said.

In 2007, the United States had six months worth of supplies stockpiled. But by 2010, there was a mere six weeks worth of stocks, said Jordan Lea, a cotton merchant with Eastern Trading Co. Inc. of Greenville, South Carolina.

"This is a classic bull market we're in where demand is driving prices higher," Lea said. Cotton mills in the United States have been pinched by high prices, and many may shut down this year because of a lack of cotton due to strong exports, said Cass Johnson, president of the National Council of Textile Organizations.

"It would be hard for me to put into words the tension and the anxiety it has caused," Johnson said. A decision by India to limit exports has added to the volatility, Johnson said. But that assertion was rejected by Vinay Kwatra, a diplomat from the Indian Embassy in Washington, who explained his government sought to balance the interests of its producers with its textile industry amid the soaring world prices.

FINANCIALIZATION OF COMMODITIES

While many economists point to the correlation between commodity prices and movements in the U.S. dollar as evidence of the "financialization" of commodities, there is no conclusive evidence that investment by funds has played more than a short-term role in markets driven by supply and demand, a World Bank economist said.

"This sort of 'new money' is unlikely to alter long-term trends," said John Baffes. But volatility and strong returns in cotton have prompted flashy headlines, which could draw "undue attention" from investors, said Lea.

Lea said he supports the direction taken by the Commodity Futures Trading Commission to limit the largest of the large speculative positions because he worries an influx of investment could again overwhelm the relatively small cotton market. But he said he hopes limits don't drive investors out of the market completely.

"We need the liquidity these guys offer, but within reason," said Lea.

(Editing by David Gregorio)