Cotton futures' prices rose their daily limit on Friday, the third straight day of strong gains, as signals of heavy demand triggered panic buying.

"We're trading a kind of hysteria right now," said Keith L. Brown of Keith L. Brown & Co., a commodities brokerage firm in Moultrie, Ga.The gain may have been magnified by thin trading conditions, typical of a holiday period. With fewer trades occurring, each one carries more weight, which increases market volatility.

On other commodity markets, China's continuing grain-buying binge boosted wheat and soybean futures, and crude oil finished sharply higher in a late surge. The Commodity Research Bureau's index of 21 commodities rose 0.62 point to 235.43. Most markets closed early for the long Christmas weekend and will reopen Tuesday.

Cotton for March delivery soared the permitted daily limit of 2 cents on the New York Cotton Exchange to 88.18 cents a pound, the highest daily settlement for near-term deliveries since May 28, 1991.

It was the third straight day of strong gains in cotton, which has soared 26 percent since mid-October as poor crops in China, India and Pakistan have boosted demand for U.S. cotton.

Those factors were reinforced by a weekly Agriculture Department report released after Thursday's close that showed export sales and shipments of U.S. cotton running 46 percent ahead of last year, and by an International Cotton Advisory Committee report Friday reducing its 1994-95 world production estimate to 18.53 million metric tons from 19 million.

Merrill Lynch cotton analyst Judith Ganes also cited reports of a trade dispute that could result in reduced shipments from Pakistan. And she said traders were worried that Uzbekistan, a cotton-producing former Soviet republic, will align itself with Chechnya, a Russian republic battling for separation, which could disrupt supplies from Uzbekistan.

"Supplies are pinched already, and any decline in shipments adds that much more fuel to the fire," Ganes said.

Brown said the soaring prices reflected speculation of tight supplies in January and February due to the hefty export sales already booked. But he said the market was getting too far ahead of itself and was due for "a vicious correction."

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"It's almost like when we were children and had those little stacking blocks," he said. "The higher and higher it got, the more it started to waver until you got to the last one and it fell over."

Grain and soybean futures advanced in thin trading on the Chicago Board of Trade on news of another Chinese purchase of U.S. wheat and talk of Chinese interest in U.S. soybean oil.

Wheat rose for the seventh straight day after the Agriculture Department announced that China bought 199,000 metric tons of wheat at subsidized prices overnight. The deal brought China's confirmed purchases of U.S. grain this week to about 2 million metric tons of wheat and 1.45 million metric tons of corn.

Wheat's ability to remain above the psychologically important level of $4 a bushel attracted additional buying.

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