* July contract liquidation puts pressure on market
* Climb to near March high spurred profit-taking -dealers
* Dec/July premium widens to 2.34 cts/lb
NEW YORK, June 18 (Reuters) - Cotton futures posted a second session of losses on Tuesday as investors booked profits after last week's steep gains, pulling prices back from recent highs.
The most-active December cotton contract on ICE Futures U.S. fell 1.67 cents, or 1.9 percent, to settle at 87.32 cents, closing down for a second day.
Front-month July futures dropped more steeply, settling down 2.45 cents, or 2.8 percent, at 84.98 cents a lb, as investors exited their positions ahead of the contract's expiration on July 9.
The front-month contract climbed to 92.58 cents on Friday, the strongest level since touching a one-year high of almost 94 cents in mid-March.
Since then, investors have seen profit-taking. Cotton has also felt pressure as concerns over U.S. supplies waned in recent days and as expectations grew that the high prices could deter demand from global textile mills.
"People are looking to liquidate their July contracts, and that's putting pressure on the whole board. This is just plain liquidation," said John Flanagan of Flanagan Trading Corp. in North Carolina, citing a drop in open interest.
Open interest totaled 178,126 contracts on Monday, down 2,431 lots from the previous session, according to the most recent ICE data.
The combination of falling prices and declining open interest is often interpreted as long liquidation.
The July/December spread widened to leave December at a premium of 2.34 cents a lb over July, up from 1.56 cents during the previous session and a discount of as high as 2.88 cents last week.
The move indicated some easing concern over near-term supplies, dealers said, after prices rallied last week on speculation that a large merchant would take a big cotton delivery in July, potentially straining U.S. supplies.
Concerns over dry conditions in Texas have waned amid recent rains, dealers said, though the U.S. Department of Agriculture cited an increase in abandonment rates in the top-producing state behind its lowered U.S. crop estimate.
A weekly U.S. government crop progress report released after Monday's close confirmed expectations of a pick-up in plantings in the United States, the world's top exporter.
Though the world is forecast to hold record global stocks by the end of the 2013/14 crop year through July 2014, the vast majority are expected to become part of China's reserves due to a government stockpiling policy, and are considered unavailable to the global marketplace.
The situation has created a sense of tightening global supplies outside of China.
ICE raised the initial margin requirements for trading cotton on Tuesday, effective with the opening of business on Thursday, June 20.
Exchanges typically raise margins to mitigate risks as price volatility in the market increases. (Reporting by Chris Prentice; Editing by Kenneth Barry)