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MUMBAI (Reuters) - India banned cotton exports with immediate effect on Monday to ensure supplies for domestic mills, boosting global prices some 4.5 percent as the absence of shipments from the world's second-largest producer might tighten a market facing weak demand.
India has already exported 9.4 million bales, the government said on Monday, higher than the projected export surplus quota of 8.4 million bales New Delhi had set in January, due to strong demand from China. Each bale is 170 kg.
This excess led India's Directorate General of Foreign Trade (DGFT) to ban shipments, to ensure steady supplies for the local textile industry, the country's largest employer after agriculture and which accounts for some 4 percent of GDP.
"The decision to ban exports took into account the trend of domestic consumption and depletion of domestic availability," the government said in a statement.
Cotton output estimates for the year ending September 30, 2012 were cut to 34 million bales from 34.5 million bales previously, the statement said.
The government said there were also signs of hoarding in bonded warehouses abroad.
Benchmark U.S. May cotton futures climbed over 4.5 percent on Monday to be limit up and at their highest level since February 29 after the announcement, erasing a fall of 2.13 percent last week which was driven by a stronger dollar and ample global supplies.<COT/N>
Prices in China, India's top customer and the world's largest user of the fibre, gained over one percent.
"Export of cotton has been prohibited till further orders," the DGFT said in a statement. "Export against registration certificates already issued will also not be allowed."
For graphic on global cotton exports: click link.reuters.com/sys86s
The ban could spur China to buy more cotton from the United States, the world's biggest exporter, and further boost prices. But analysts said plentiful global supplies - and weak demand for textile mills - would put a cap on prices and purchases.
"India's export ban is going to direct demand back to the U.S. and that is going to help to put a floor on how low prices can go this year," said Abah Ofon, analyst at Standard Chartered Bank in Singapore.
But he added: "U.S. stocks are comfortable and I don't see this ban adding huge upside pressure on prices. What it will probably do is limit the decline in prices."
New York-based VIP Commodities, however, said in a weekly summary the United States was "almost out of cotton," and questioned where extra bales could be found.
China will cut its cotton imports by 1 million bales to 16 million bales of cotton in 2012/13 from the previous year, the U.S. Agriculture Department said.
India is one of China's major cotton suppliers , but analysts said the ban was unlikely to have much of an effect, because Chinese traders have already bought over 80 percent of the Indian cotton they signed deals for in the current marketing year that will end in September 2012.
Demand from cotton mills was also low due to the global economic downturn, which meant China's cotton stocks were plentiful, said Dong Shuangwei, a senior researcher with Beijing Capital Futures.
"China has already imported about 800,000 tonnes of cotton since September from India," Dong said, adding that China had planned to buy 1.3 million tonnes from India.
"That means the ban will only impact between 300,000 to 350,000 tonnes of cotton, which have not been loaded. China's downstream demand is poor and there is still a large amount of cotton stocks at ports," he added.
Cotton prices in China have fallen more than 35 percent from a record high about a year ago, sapped by weak demand from the country's textile industry.
Cotton prices in India fell 2,000 rupees on Monay to 33,000 rupees per candy of 356 kg each, a little over half the record high of 61,700 rupees per candy reached in March 2011.
The export ban pushed down the key March cotton contract on the Multi Commodity Exchange by 4 percent, the maximum permissible limit, to 16,470 rupees per bale.
Dhiren N. Sheth, president of the Cotton Association of India, which groups cotton exporters and traders, said he had appealed to the government to review the ban immediately.
"It's a very regretful decision and this will permanently damage the reputation of India in the international market," Sheth said. "Prices are likely to touch support price levels very soon."
Additional reporting by Niu Shuping in Beijing and Rene Pastor in New York; Editing by Miral Fahmy