June 4 (Bloomberg) -- Cotton rose, paring losses, on speculation concerns are easing that a U.S. investigation into cotton trading will limit investor interest.

A surge in cotton prices in February and March is the focus of a Commodity Futures Trading Commission investigation announced yesterday. Separately, the CFTC is seeking increased disclosure from investors and index funds about agriculture- market holdings, a move that analysts said may curb investments.

``One of the big influences over the past several days was rumors of an investigation that they've now acknowledged,'' said Joe Carney, a vice president for Iamhedged.com in Memphis, Tennessee. ``The mention of cotton in the CFTC announcement may have speculators hitting the exits.''

Cotton for December delivery rose 0.03 cent to 72.86 cents a pound after rebounding from as low as 71.75 cents on ICE Futures U.S., the former New York Board of Trade. Most-active futures fell 2.1 percent in the past three sessions before today.

Futures were lower for most of the session as the strengthening dollar lifted raw-materials prices for investors using other currencies. The U.S. is the world's biggest cotton exporter.

The stronger dollar helped push down the Reuters/Jefferies CRB Index of 19 commodities 0.7 percent. Crude-oil futures, which Carney said influence commodities including cotton, fell as much as 2 percent to $121.84 a barrel today in New York.

Most-active cotton futures gained 46 percent in the past year as farmers plant less in favor of more profitable corn and soybeans. The U.S. Dollar Index, a gauge that includes the euro and yen, dropped 11 percent in the same period.

CFTC Probes

The CFTC, which last week disclosed an investigation of potentially improper trading in oil futures, is probing cotton trading as well to ensure that markets are properly policed and aren't manipulated or abused, acting Chairman Walt Lukken said.

The CFTC plans to require more disclosure for index traders and swaps dealers, and grant fewer exemptions to speculative- position limits related to agriculture-index trading. That sparked speculation that rule changes will halt a surge in commodity investment.

To contact the reporter on this story: Ron Day in New York at rday1@bloomberg.net.

Last Updated: June 4, 2008 16:43 EDT