U.S. cattle futures set a two-week high on Monday lifted by a sharp drop in this week's cattle supplies and on news of active beef exports last week, traders said.

Hogs finished higher with the lead August the highest in 3-1/2 months as hot weather has slowed hog marketings and pushed up cash prices.

A deal on the federal debt limit gave both markets an early lift, but that support quickly faded and the markets dipped before traders focused on strong cash markets.

In cattle, rebounded from the morning weakness to finish higher on talk of smaller cattle supplies in key states of Kansas and Nebraska.

"That is why we rallied," one trader said of the smaller showlists.

The Nebraska cattle supply was down 25,000 to 26,000 cattle this week and in Kansas it was down 9,000 to 10,000 head, feedlot sources said. In Texas, the overall supply down about 4,800 head.

The smaller supply plus the higher futures market had Chicago traders predicting steady to $1 higher cash cattle markets this week. Cattle traded last week at $108.50 per cwt.

USDA on Monday said 944 loads of beef, or about 17,128 tonnes, were sold for export last week, the most in four weeks. That is up from 713 loads a year ago.

A weak U.S. dollar and stronger overseas economies have fueled beef exports, which are up nearly 36 percent this year. Radiation-tainted beef in Japan caused a small increase in that country's beef purchases, a U.S. meat industry source said.

August cattle futures 2LCQ1 closed up 0.675 cent at 113.300 cents per lb. The highest for a lead contract in about two weeks. October 2LCV1 was up 0.475 to 117.800.

Feeder cattle futures finished mixed, with deferred months pulled up by higher live cattle.

Cash feeder prices were mostly steady to higher on Monday at the closely watched Oklahoma City auction, where feeder steers were steady to $2 per cwt higher, while heifers ranged from $2 higher to $2 lower.

August feeder cattle 2FCQ1 closed down 0.225 cent at 136.825 cents per lb and September 2FCU1 up 0.100 at 138.725.

HOGS HIGHEST SINCE APRIL

Hog futures are the highest since April due to forecasts for higher cash markets this week as ongoing hot weather has stressed hogs and delayed marketings.

Robust exports, particularly to China, supported the market.

Through May, China has bought nearly 130.5 million lbs of U.S. pork, compared with 6.55 million lbs a year earlier, and meat sources on Monday said it is seeking more.

In addition, pork export sales to top buyer Japan are up 15 percent year to date through May at 626.64 million lbs.

Exports are one reason wholesale pork prices have been record high for four straight days last week. USDA on Friday put the average wholesale price at $104.64 per cwt.

Pit-traded August hog futures 2LHQ1 closed up 0.325 at 103.100 cents per lb and October 2LHV1 closed up 0.600 at 93.000 cents.

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