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ICE plans to launch first global cotton contract next year

* Plans to launch follow long-running discussions with industry

* Traders say U.S. contract vulnerable to price-distorting squeezes

* No details yet on origins or delivery locations

By Josephine Mason

NEW YORK, Oct 2 (Reuters) - IntercontinentalExchange Inc plans to launch the first global cotton futures contract in early 2014, the Atlanta-based exchange said on Wednesday, giving merchants, mills and growers their first alternative to pricing on the U.S.-only contract.

The new contract will be listed alongside ICE's existing U.S. contract and will accept foreign origins as well as U.S.-grown cotton for delivery in multiple locations, including the United States, an ICE spokeswoman said.

Other origins and locations are still to be finalized, she said.

"We will be working with cotton market participants to finalize the details of this contract and hope that we can resolve outstanding issues and launch an international contract in early 2014," ICE Futures U.S. President and Chief Operating Officer Ben Jackson said in a statement on Wednesday.

The move may help dispel criticism from growers, mills and traders across Africa, Asia and the Americas that the exchange's existing No. 2 contract is increasingly vulnerable to price-distorting squeezes.

Some say it may be even harder to lure money away from a deeply entrenched benchmark that still enjoys the support of the U.S. industry's biggest players.

The contract is used as the global benchmark but accepts only cotton grown in the United States.

The move also reflects the diminishing U.S. role in the global cotton market. The United States is the third-largest producer behind China and India, and the world's No. 1 exporter.

Long-running discussions between the exchange and the global cotton industry about the contract have stumbled over specifications, dealers involved in the process have said.

While cotton from Brazil and Australia is the favored foreign origin for the contract, growers, mills and traders have struggled to agree on delivery locations, dealers familiar with the discussions have said.

Dealers say the exchange is also under pressure to protect its stronghold in the niche fibers market as it finalizes its $8.2 billion takeover of NYSE Euronext, giving it a near-monopoly in global cocoa, coffee and sugar derivatives trading.

Last year, its Chicago rival CME Group Inc started looking at listing an alternative futures contract which would include foreign-grown fiber.