SOFTS-Raw sugar jumps as the dollar falls; cocoa pares gains
* Coffee rebounds, but many dealers remain bearish
* Producer selling expected to cap any advance in raw sugar
* Cocoa underpinned by expected global deficit in 2012/13
(Updates closing arabica/sugar prices)
NEW YORK/LONDON, Dec 3 (Reuters) - Raw sugar futures surged nearly 3 percent on Monday, buoyed by short-covering, the weak U.S. dollar and a broad-based advance in the commodity complex, while coffee and cocoa markets pared earlier gains.
The dollar extended losses against the yen and slightly added to losses versus the euro after U.S. data showed the manufacturing sector may be struggling to gain traction.
The 19-commodity Thomson Reuters-Jefferies CRB index jumped nearly 1 percent to 301.58 points, breaking above 300 for the first time in nearly six weeks, before paring gains to about 0.4 percent.
A weak greenback can pressure dollar-traded commodities such as the softs complex - with the exception of Liffe cocoa, which trades in British sterling - by attracting buyers holding other currencies.
Raw sugar futures for March on ICE Futures U.S. rose 0.41, cent or 2.1 percent, to settle at 19.75 cents a lb, after earlier jumping 3.1 percent to 19.94 cents.
The contract was boosted by the weak dollar, although dealers said producer selling would probably cap any advance in prices.
Total volume was heavy and exceeded 111,000 lots, the highest in two weeks, preliminary Thomson Reuters data showed.
"It all started with the weak dollar ... and once the traders read that the funds were back to where they were with a big short position, they're vulnerable to buy-stops being triggered," a London-based broker said, referring to exchange data showing that speculators increased their short positions last week.
U.S. Commodity Futures Trading Commission data released post-market on Friday showing that in the week ended Nov. 27, speculators raised their net short position in raw sugar futures and options on ICE to the biggest in more than five years.
Open interest has since jumped 1.3 percent to nearly 747,800 lots by Nov. 30, the highest since June 18.
"There definitely is some producer selling, but the funds seem to be absorbing it so far," said Michael McDougall, a vice-president at Newedge USA in New York.
"We continue to believe that there is expected pricing pressure toward the 20-cent area, especially from Brazilian producers, given the weakness in the real," Sucden said in a note.
March white sugar on Liffe rose $7.30, or 1.4 percent, to finish at $523.40 per tonne.
Cocoa futures on ICE were also higher, with March settling up $21, or 0.8 percent, at $2,519 a tonne. Earlier, the contract climbed to $2,555, the highest level for the second position since Sept. 28.
Industry buying and sterling strength against the dollar helped lift the market, while some origin selling prevented stronger gains, dealers said.
"I am hearing that industry is buying cocoa at these levels, which gives me the impression we could go much higher," said Hector Galvan, senior market strategist for RJO Futures in Chicago.
"In addition, the technical traders are also buying now that we have traded past the November highs of $2,520."
Dealers said a slow start to main crop harvests in West Africa and an expected modest revival in demand had led many to expect there will be a global deficit in 2012/13.
Cocoa arrivals at ports in top grower Ivory Coast reached about 352,000 tonnes by Dec. 2 since the start of the season in October, exporters estimated, down about 17 percent from the same period a year ago.
Benchmark Liffe March cocoa futures closed up 5 pounds, or 0.3 percent, at 1,591 pounds a tonne.
Arabica coffee was firm but held its recent range while the market struggles to absorb plentiful supplies after a large Brazilian harvest this year.
March arabica coffee futures on ICE closed up 0.10 cent, or 0.1 percent, at $1.5070 per lb, paring gains after rising to $1.5315 earlier in the session. The contract sank 5.80 cents, or 3.7 percent, on Friday.
The discount of the December contract widened significantly to around 12.70 cents per lb versus the March contract, but narrowed later in the session to close at 9 cents. Though the contract is thinly traded, with open interest at a mere 96 lots as of Nov. 30, as it is in the delivery period, it has widened further than expected after the exchange increased the penalty for holding onto older coffee.
There have been 281 notices posted so far on ICE.
"The coffee spread is out of control," Galvan said.
"I am very surprised to see the spread this far apart, but can only imagine that this could be due to a lack of demand in the near term for coffee."
"Coffee is not, on a long-term technical basis, oversold yet. Supply is still relatively good," Cole Martin, an analyst at Business Monitor, said, noting prices appeared to be headed toward the key $1.40 per lb level, which has not been broken since 2002.
March robusta coffee futures closed down $10, or 0.5 percent, at $1,910 a tonne, with exchange data showing speculators switched to a net short position in the week ended Nov. 27.
(Additional reporting by Nigel Hunt in London,; editing by William Hardy, Jane Baird, John Wallace and Marguerita Choy)