SOFTS-ICE cocoa, sugar climb on U.S. budget deal optimism

* Cocoa remains stuck in a range

* Potential for further short-covering in arabica

* Arabica on track to be weakest CRB performer in 2012

(New throughout, updates prices; adds trade comment, second byline/dateline)

NEW YORK/LONDON, Nov 29 (Reuters) - Cocoa and sugar futures on ICE edged higher on Thursday, in line with firm commodity markets, as hopes rose that the United States would avert a fiscal crisis, while coffee pared earlier gains.

A benchmark world stock index rallied to a three-week high and the euro gained on optimism that U.S. political leaders were progressing toward a deal to avoid a fiscal crisis that could derail growth in the world's biggest economy.

"We have been trading in line with the macroeconomic headlines lately," said Andrey Kryuchenkov, an analyst at VTB Capital.

"This optimism over the U.S. avoiding a fiscal cliff is not going to carry on forever. I do think they will agree, but the point is that no one will be prepared to short the dollar until we have complete certainty on this."

A weaker dollar is supportive of dollar-priced commodities, making them cheaper in foreign currencies.

Cocoa futures on ICE were higher with March closing up $33, or 1.3 percent, at $2,491 a tonne.

"It's following the strength in the equity markets. We're also hitting some resistance around that $2,530 level, which is the high from back in October," said Boyd Cruel, a softs analyst for Vision Financial Markets in Chicago, referring to the benchmark March contract.

"The market made two attempts last week to break above that area then it pulled back."

Dealers said both the London and New York markets remained range-bound, without clear technical or fundamental direction, trendless since December 2011.

Benchmark Liffe March cocoa futures settled up 14 pounds, or 0.9 percent, at 1,585 pounds per tonne.

"Support is towards 1,550 pounds, resistance is towards 1,600 pounds, so the range is narrowing but there's still no sign of a concerted breakout," said a British-based broker.

SUGAR MOVES QUIETLY SIDEWAYS

The March raw sugar futures contract on ICE was up 0.14 cent, or 0.7 percent, at 19.30 cents a lb by 12:21 p.m. EST (1721 GMT).

"With the macro picture improving as a result of increasing optimism in the U.S. that political parties are attempting to compromise ahead of the fiscal cliff, stocks and other commodities held their ground or improved," said Nick Penney of brokerage Sucden Financial.

"This background may also have helped sugar avoid the drop through 19 cents to support at around 18.90 but the subsequent rally has been anemic, to say the least."

Dealers and analysts said the market was expected to remain stuck below key technical resistance of around 20 cents as the outlook for a large 2012/13 global surplus weighed.

"We had a small attempt to get above 20 cents in mid-November... and then it just remained range-bound because there's no fundamental news and nobody is expecting anything now," Kryuchenkov said.

"We're just going to wait to see more news in the new year on crops."

The market did not react to a Reuters report that Mexico's agriculture minister said the country has begun bankruptcy proceedings for nine state-held sugar mills producing around a fifth of the country's sugar so it can sell them.

March white sugar on Liffe rose $3.70, or 0.7 percent, to $513.30 per tonne.

Arabica coffee futures on ICE extended the previous session's steep gains, when the benchmark March contract hit a 2-1/2-year low and then rallied in an outside reversal. They pared earlier gains on month-end book-squaring, dealers said.

Benchmark March arabica coffee futures climbed 2.05 cents, or 1.3 percent, to $1.5690 per lb. The contract slumped to $1.4710 on Wednesday, the lowest level for the benchmark second month since June 2010, before a short-covering rally trimmed losses.

The discount of the December contract, which is in its delivery period, continued to grow, reaching around 12 cents per lb, the biggest since February 1986. It has extended beyond the cost of carrying it to the next delivery period in March, which dealers say is roughly 9 cents per lb. Market participants are believed to be bailing out of the spot contract after ICE increased its penalties for older certified beans.

Exchange data showed delivery notices for 272 lots have been posted so far. December open interest is at a light 125 lots as of Nov. 28, down a mere 9 lots from the previous session.

Dealers noted that the large net short position in arabica futures and options built up by speculators in recent weeks could see further short-covering in the near term, although market fundamentals remained bearish with ample supply.

Arabica futures are the weakest performer on the Thomson Reuters-Jefferies CRB index in 2012 so far, having dropped around 35 percent from the end of 2011.

January robusta coffee futures were up $2, or 0.1 percent, at $1,937 a tonne.

Vietnam's harvest is now in full swing and the recent rebound in prices was expected to create an incentive for origin selling.

"It's probably around where origin are going to be so it's going to be tougher (for the market to rise) from here on," the broker said.

(Editing by Alison Birrane; Editing by Peter Galloway)