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SOFTS-Arabica coffee vaults to 10-week high, sugar extend gains

Tuesday, 2 Oct 2012 | 2:50 PM ET

* Weak U.S. dollar provides support to commodities

* Brazil's Somar: flowering bodes well for 2013 coffee crop

* Sugar technical outlook turns positive

(Updates closing arabica, sugar prices and volume)

By Marcy Nicholson and Sarah McFarlane

NEW YORK/LONDON, Oct 2 (Reuters) - Arabica coffee futures soared nearly 4 percent to a 10-week high on Tuesday, on heavy short-covering prompted by concerns of dry weather in top grower Brazil, while raw sugar extended the previous session's steep gains.

Cocoa futures turned higher after falling to multi-week lows.

The Thomson Reuters-Jefferies CRB index , a bellwether for commodity markets, has risen about 2.5 percent over the past three sessions.

Arabica coffee futures soared in heavy volume as concern about forecasts for dry weather in Brazil, after many coffee trees already flowered and require more rain, helped spur heavy short-covering.

"The weather forecast going forward for the next week is dry, but it's not like it's dry down there," one New York dealer said.

Coffee trees in Brazil's main growing areas have begun sprouting their first flowers in good quantity, an agronomist at private weather forecaster Somar said, boding well for the prospects of the 2013 off-year harvest.

Some dealers said it was too soon to be concerned about dry weather during the critical flowering stage.

ICE arabica December futures settled up 5.60 cents, or 3.1 percent, at $1.8365 per lb, the strongest settlement for the spot contract since July 23. Earlier the contract jumped 3.7 percent to a session high at $1.8455.

November robusta coffee futures rose $21, or 1 percent, to settle at $2,200 a tonne.

"There's a lot of positive technical action and short-covering into significant origin selling," one veteran New York dealer said, adding that many were concerned about upcoming dry weather in Brazil.

"I think it's a bit early to be worried but clearly we need more rain. It's something to keep an eye on," said a London-based analyst.

The euro rose for a second straight session, pulling further away from recent three-week lows against the dollar on growing expectations the euro zone's fourth-largest economy Spain is ready to seek a bailout.

"We saw some dollar weakness, that was probably what did the most of it," said Ole Hansen, a senior manager at Saxo Bank.

The weak greenback can attract buying of dollar-denominated commodities by investors holding other currencies.

The benchmark arabica contract extended its gains after finding support at the 100-day moving average at $1.7235 per lb on Monday, triggering automatic buy orders around $1.8370, a recent session high.

Heavy origin selling from mild arabica producing countries in Central America, Colombia and Brazil prevented steeper gains and contributed to the steep volume, dealers said.

Total volume was around 29,000 lots, up nearly 50 percent rom the 30-day average, preliminary Thomson Reuters data showed.

SUGAR UP

ICE March raw sugar futures jumped 0.46 cent, or 2.2 percent, to close at 21.59 cents per lb, the highest finish for the spot contract since Aug. 6. The contract surged to a session high at 21.72 cents per lb, buoyed by a firm commodity complex and additional buying after hitting the 100-day moving average at 21.34 cents.

"We've had positive momentum on sugar for the past five days," Saxo Bank's Hansen said.

Hansen noted that since the correction in prices in July-September, culminating in sugar dipping to a two-year low of 18.81 cents on Sept. 6, the technical picture has improved.

"We need to establish a plateau around the 21-cent area."

December white sugar on Liffe rose $10.50, or 1.8 percent, to close at $592.60 per tonne.

Liffe cocoa rose after extending losses to hit a two-month low in early trading, as dealers noted funds were exiting long positions.

"We have seen long liquidation, it's not massive but it is occurring," a London-based broker said, adding that volume is light.

"We've seen speculative activity (at the start of the fourth quarter) associated with rebalancing and reallocation."

Benchmark March cocoa futures rose 19 pounds, or 1.2 percent, to settle at 1,596 pounds per tonne, having dipped to 1,555 pounds earlier in the session.

ICE December cocoa closed up $25, or 1 percent, at $2,475 per tonne, after falling to $2,412, the lowest since Aug. 23.

Ivory Coast fixed its government-guaranteed cocoa farmgate price at 725 CFA francs ($1.43) per kilogram for the 2012/13 season. Also announced in the world's biggest cocoa grower, cocoa exporters and middle men operating there will received 22 percent of the CIF (cost, insurance, freight) price for the 2012/13 season, up from 18 percent last year, a government spokesman.

(Editing by Bob Burgdorfer and Maureen Bavdek)

((Marcy.Nicholson@thomsonreuters.com, +1 646 223 6043)(Reuters Messaging Marcy.Nicholson.ThomsonReuters.com@reuters.net))

Keywords: MARKETS SOFTS/

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