(Updates prices; adds market background in paragraph 9)
NEW YORK, April 10 (Reuters) - U.S. cotton export sales dropped for the first time in almost two years in the latest reporting week, official U.S. data showed, confirming that high prices have curbed demand.
The drop in sales helped curtail a price rally seen on fears of tight nearby supplies that lifted prices to two-year highs in March.
Buyers from six countries canceled at least 67,500 bales of upland cotton in the most recent reporting week, data from the U.S. Agriculture Department (USDA) showed on Thursday, as New York futures hovered near two-year highs above 90 cents a lb.
The cuts resulted in net cancellations of some 10,900 bales, the first time buyers have bought fewer bales than they canceled since June 2012.
The report led to the benchmark May cotton contract on ICE Futures U.S. trade to an over one-month low of 89.05 cents a lb post-report and trading down 1.16 cents, or 1.3 percent, at 89.28 cents a lb by 11:26 a.m. EDT (1510 GMT).
Buyers in Thailand, Mexico, Bangladesh, and Indonesia accounted for the bulk of cancellations. Mexico is the third largest buyer of U.S. cotton so far this season, behind Turkey and China.
That was the largest number of net cancellations since June 2012, when buyers opted out of at least 602,100 bales, according to USDA data reviewed by Reuters.
Sales of bales for the 2014/15 crop year picked up, suggesting some of the bales had been pushed to the new year that begins on Aug. 1.
The December contract, which represents the 2014/15 crop, traded at around 80 cents a lb in recent sessions. Nearby prices have been trading at a premium since late 2013 due to worries over tight supplies in the U.S, the world's top exporter.
Front-month prices soared to 97.35 cents a lb in late March and has hovered at the key level of 90 cents a lb since as expectations that the strong pace of U.S. export sales will continue.
"Buyers definitely anticipate a fall out in prices. The price is high in the front, showing there's a short-term supply squeeze, but long-term, there's going to be plenty around," said one U.S. broker.
The cancellations will likely stoke merchants' worries after price gyrations in 2011 spurred widespread contract defaults by both mills and farmers. Buyers in Bangladesh were among the biggest offenders.
While prices have fallen sharply from highs above $2 a lb in early 2011, volatility has picked up in recent weeks as traders weigh short-term supply concerns with huge global inventories.
To be sure, there were no net cancellations reported for the top U.S. destinations of Turkey and China, a relief to traders.
Traders closely watch for signs of demand in China, the world's top consumer, as Beijing unwinds a stockpiling program it launched in 2011 that has driven voracious demand for foreign bales and pegged a floor under world prices. (Reporting by Chris Prentice; Editing by Sofina Mirza-Reid)