Jan 3 (Reuters) - ICE cotton futures fell over 1% on Friday, sinking to a two-week low, dragged down by a lower grains market and a federal weekly export sales report that highlighted reduced buying activity for the natural fiber.

* Cotton contracts for May CTc2 fell 0.75 cent, or 1.08%, to 68.98 cents per lb at 11:08 a.m. ET (1608 GMT), reaching their lowest level since Dec. 20, 2024, earlier in the session.

* The contract is down about 1.5% for this week so far.

* "The market is following other markets, a lot of negativity across the board and commodities ... Cotton seems to be facing a lot of selling pressure from investors. It's been in a downwards trend for the past couple of months now and seems unable to break out of that," said Bailey Thomen, cotton risk management consultant at StoneX Group.

* Chicago corn and soybean futures edged down, consolidating after a rally fueled by a dry outlook for some South American crops, while wheat also eased. GRA/

* The United States Department of Agriculture's weekly export sales report showed net sales of upland cotton totaling 128,900 running bales (RB) for 2024/2025, down 54% from the previous week and 35% from the prior four-week average. EXP/COT

* The report further showed the export sales of upland cotton at 115,800 RB, down 18 percent from the previous week and from the prior four-week average.

* "We still see China being a little bit absent from the market as a buyer, which is not really what the market wants to see, since they are down significantly on their year-over-year purchases," Thomen added.

* The dollar dipped on Friday but was on track for its strongest weekly performance since early November. USD/

* A higher dollar makes cotton more expensive for overseas buyers holding other currency.

(Reporting by Anmol Choubey and Noel John in Bengaluru; Editing by Mohammed Safi Shamsi)

((anmol.choubey@thomsonreuters.com;))