SOFTS-ICE arabica hits 2-1/2-year low, then pares losses

* Sugar remains range bound, surplus prevents bigger gains

* Arabica seen consolidating around current level

* Cocoa dealers debate Ivory Coast crop size

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

NEW YORK/LONDON, Dec 5 (Reuters) - Arabica coffee futures on ICE hit a 2-1/2 year low on Wednesday and then pared losses as the market looked for a bottom, and cocoa also eased as investors worried about U.S. budget talks.

Raw sugar on ICE Futures U.S. turned higher in choppy, rangebound dealings, following the Thomson Reuters-Jefferies CRB index which also changed direction and firmed up.

Republican leaders said talks with U.S. President Barack Obama to agree on a budget and avoid the "fiscal cliff" are deadlocked, pressuring Wall Street stocks.

"In coffee, we're making a secondary low," said Shawn Hackett, of Hackett Financial Advisors in Florida.

"We've been testing this 1.50 (cents) area and we're in the process of the retest."

March arabica coffee futures were flat at $1.4835 per lb, by 12:30 p.m. EST (1730 GMT), after falling to a 2-1/2-year low at $1.4635.

Arabica coffee prices edged lower. Dealers noted the large speculative short position which has built up over recent months and said a short-covering rally was possible if funds moved to cover the large short position.

"I don't see any bullish news that could drive the market on the upside but I think we may have seen the bottom recently," said Diapason's Latheire, adding he expected prices to consolidate around current levels.

One London-based broker expected the market to move higher near-term.

"When it gets above $1.60 people will start covering, but you have to remember Brazil has still got to sell some, which might initially cap any upside," the broker said.

Top producer Brazil is heading into an off-year in its biennial crop cycle after harvesting a large crop earlier this year.

March robusta coffee futures were up $10 at $1,891 a tonne.

March raw sugar futures on ICE turned up a shade, as a lack of new fundamentals kept the market choppy and indecisive in a range from 18.66 cents to 20.03 cents for the past six weeks.

March raws climbed 0.06 cent, or 0.3 percent, to 19.50 cents a lb, remaining stuck in its recent trading range of between 19 and 20 cents per lb.

"News concerning the sugar market for the moment is not good so that is keeping the market under pressure, all the signals we have from big sugar producers and exporters are quite bearish and we see strong output again this year," said Romain Lathiere, head of dealing at Diapason Commodities Management.

March white sugar on Liffe rose $1.60, or 0.3 percent, to $519.70 per tonne.

The International Sugar Organization also said world market prices could remain under pressure until the end of the current October/September crop cycle, reiterating in its monthly report it expects a 2012/13 surplus of 6.18 million tonnes.

IVORY COAST DEBATE

Cocoa prices were near slightly lower with dealers noting the lower-than-expected arrivals in Ivory Coast were causing some concern over whether the size of the crop had been overestimated.

"There's a massive argument over the size of the Ivory crop," said a London-based broker.

"People who think the Ivory crop is smaller than expected and is going to tail off quite quickly are obviously quite bullish whereas half the industry thinks it's neutral and there's no real story."

Liffe March cocoa futures settled down 8 pounds, or 0.5 percent, at 1,540 pounds a tonne.

The December premium over March <LCC-1=R> narrowed for much of the session but widened out late in the session to 48 pounds after closing at 46 pounds the previous session. The premium grew sharply in the previous session after a large amount of cocoa failed to achieve Liffe certification.

Dealers eyed a wide range of estimates for 2012/13 global cocoa supply and demand, with trade house Olam International Ltd forecasting a deficit in excess of 150,000 tonnes, while U.S. agribusiness company Cargill expects cocoa supply and demand near balanced. 1/8ID: nL5E8MLLEO 3/8

"Even if Ivory Coast's crop is a bit shorter than expected supply and demand is going to be balanced," the broker added.

Cocoa futures on ICE finished lower, with March down $24, or 1 percent, at $2,420 a tonne.

(Additional reporting by Sarah McFarlane in London; Editing by James Jukwey, Alison Birrane and David Gregorio)