SOFTS-Raw sugar sinks, arabica drops after hitting 7-week high

* Sell-stops triggered in raw sugar market

* Ivory Coast cocoa arrivals pick up

* Dealers eye large speculative short position in arabica

(New throughout, updates prices and market activity; adds second byline/dateline)

NEW YORK/LONDON, Jan 3 (Reuters) - Raw sugar futures on ICE Futures U.S. fell more than 3 percent on Thursday, while arabica coffee turned lower after hitting a seven-week high, as commodities came under pressure with the dollar rising on concerns about looming U.S. political battles over the budget.

Cocoa futures were little changed while Liffe robusta coffee jumped to a seven-week high.

The dollar climbed to a three-week high against a basket of currencies on concerns about more budget wrangling in Washington. The firm greenback typically pressures prices of dollar-denominated commodities, but most other commodities experienced much more modest dips than sugar.

The Thomson Reuters-Jefferies CRB index slipped about 0.3 percent as investors worried about showdowns in Washington over the next two months on spending cuts and an increase in the U.S. limit on borrowing.

A day earlier, the CRB, made up of 19 commodities, rallied more than 1 percent to a one-month high as investors hailed a deal by the U.S. Congress that averted hundreds of billions of dollars in automatic tax hikes and spending cuts.

"What they passed yesterday, gave the markets a big energy boost and now reality's beginning to set back in and we're seeing a firmer dollar," said Sterling Smith, a futures specialist for Citigroup in Chicago.

ICE raw sugar futures fell from the one-month high hit the previous session, as ample supplies and profit-taking added pressure.

"It got to a level where there were a number of stops and in a matter of seconds it dropped like a stone," said a second London-based broker.

The spot sugar contract tumbled a steep 2 percent within three minutes shortly before 9 a.m. EST (1400 GMT), with a surge in volume at nearly 9,000 lots.

"We haven't made any real inroads on the upside. It all comes back to the surplus," said a London-based broker.

"The trade have all got the same problem, they're all trying to sell sugar, they're long of physicals and have to find buyers," said the broker.

"The producers want to sell more but they can't find buyers."

March raw sugar futures on ICE dropped 0.59 cent, or 3 percent, to 19.10 cents per lb by 12:19 p.m. EST (1719 GMT), after dipping as low as 19.05 cents during the session.

March white sugar on Liffe eased $13.00, or 2.5 percent, to $515.40 per tonne.

In arabica coffee, dealers and analysts said the historically large net short speculative position, which stood at 34,110 lots at Dec 24., according to U.S. Commodity Futures Trading Commission data, made the market vulnerable to further short covering, which buoyed the market in the previous session.

"Now that the price has stabilized and is turning a little bit heavy, I think we're getting some shorts coming in here as well as a little bit of hedge pressure," Smith said.

Benchmark March arabica futures fell 2.10 cents, or 1.4 percent, to $1.4730 per lb, after hitting the highest since Nov. 13 at $1.5195.

"There's a point at which the gross short position in the arabica market either needs to potentially expand further to push prices lower and encourage demand, or it needs to pare back," said Keith Flury, an analyst at Rabobank.

"The idea that it's going to sit at that kind of level for months to come is unlikely."

Arabica finished 2012 down nearly 37 percent, the weakest performer on the CRB index.

A wide variation between estimates for top producer Brazil's coming crop could also cause concern for investors who are short of the market and trigger the closing out of positions, Flury added.

March robusta coffee futures were up $10, or 0.5 percent, at $1,952 a tonne.

Cocoa prices were steady as the volume of cocoa arriving at ports in top grower Ivory Coast increased on the week and the country's weather conditions remained favorable for the development of the mid crop.

ICE March cocoa futures eased $3, or 0.1 percent, to finish at $2,256 per tonne.

The market largely ignored the Coffee and Cocoa Council's forecast for Ivory Coast's cocoa output to dip 13 percent this season to 1.289 million tonnes due mainly to a lack of investment in ageing plantations, as it was already worked into the market.

On the demand side, the cocoa market awaited the fourth quarter cocoa grinding data, due mid-January.

"I think what a lot of people are interested in is the demand - the market could be in a 100,000 tonne deficit or it could be flat this year, very much depending on the profitability of (cocoa) grinders," said Rabobank's Flury.

Liffe May cocoa futures closed up 4 pounds, or 0.3 percent, at 1,442 pounds per tonne, above the previous session's 8-1/2 month low of 1,429 pounds.

(Editing by William Hardy; Editing by David Gregorio)