COMMODITIES-Muted action for 2nd day; gold up, cocoa/coffee down

* Markets focused on Part 2 of U.S. fiscal drama

* Oil, copper up modestly

* Gold jumps 1 pct, first rise in 3 days

* Cocoa, coffee prices slump after Tuesday rally

NEW YORK, Jan 8 (Reuters) - Most commodities saw muted action for a second straight day on Tuesday as worries about another impending political battle over U.S. fiscal issues sidelined traders and investors. Precious metals bucked the trend. Gold prices rose for the first time in three days and closed up nearly 1 percent on strong Asian physical demand and bargain-hunting. Platinum and silver also rallied. On the other end, cocoa and coffee prices fell sharply, reversing Monday's rally. The Thomson Reuters-Jefferies CRB index settled down 0.2 percent after 11 of the 19 markets on the widely followed commodities indicator ended in negative territory. Brent crude Oil rose by half a percent and copper 0.1 percent. "Most markets continue to drift and seem to be biding their time as they wait for the congressional negotiations on 'Part Two' of the fiscal cliff drama to get underway," said Edward Meir, metals analyst at Intl FC Stone. Markets were on tenterhooks through December, with opposing lawmakers in Congress locked without a deal over proposed tax increases and spending cuts that economists warned could push the U.S. economy back into recession. Many lawmakers and their aides fear things may get more toxic during a series of bitter struggles expected in the next few months over the nation's debt and deficit burdens. At stake is the U.S. government's ability to get its finances under control and whether it might default on debts and suffer further downgrades in the U.S. credit rating.

GOLD SPIKES Trading volume in gold futures on New York's COMEX were about 5 percent above the 30-day average, preliminary Reuters data showed. The front-month futures contract settled up $15.90, or nearly 1 percent, at $1,662.20 per ounce. It was the first time the market had risen since Wednesday's close, amid caution the U.S. Federal Reserve might curtail its highly stimulative monetary policy. The Fed's December policy meeting minutes, released on Thursday, showed several officials of the central bank considering a slowdown or stop of its quantitative easing (QE) that investors have figured into their economic outlook. The Fed's balance sheet of nearly $3 trillion risks instability with further expansion, the officials reasoned. Successive rounds of QE, or printing new money to boost asset prices, have been a primary driver of higher gold prices in recent years. The move has put downward pressure on long-term U.S. interest rates and fueled inflation fears. Some traders expect gold to fall as much as $30 an ounce if fears of a QE rollback increased. "Gold could certainly test its $1,625 support again, with prices drifting materially below the $1,600 mark if there is more talk of an early stop to QE in the coming days," said Bart Melek, head of commodity strategy at TD Bank.

COCOA, COFFEE SLIP Cocoa futures inched down to the lowest level in several months as dealers eyed weather conditions in top growing region West Africa, while arabica coffee prices dropped more than 3 percent, giving back the previous day's gains. Just a day earlier, cocoa futures in New York rose 2 percent in their biggest one-day rally in three weeks after hitting a technically over sold level. Arabica coffee also surged about 2 percent on buying ahead of an index rebalancing later this week. In Tuesday's session, front-month cocoa futures in New York finished down $52, or 2.3 percent, at $2,215 per tonne, for its weakest settlement since July 25, 2012. Cocoa prices fell as traders waited to see if seasonal dry Harmattan winds in West Africa would impact the cocoa crop in the largest growing nation, Ivory Coast. "Cocoa trees do not like such weather. If it persists, the size of beans in the pods will be very tiny as from February, hence of bad quality," said Salam Kone who farms in the outskirts of Soubre. Arabica coffee's front-month contract in New York closed down 2.25 cents, or 1.5 percent, at $1.4815 per lb. Arabica dropped about 3 cents, or 2 percent, within 10 minutes earlier in the session, in what dealers believed was speculative short selling. "Most people were expecting the market to go up because index funds have announced very publicly that they have to be buyers over this week and coffee's one of the commodities that they have to buy the most," said one U.S. dealer. "My guess is that they're trying to spook the longs and to spook anybody at origin who's waiting to take advantage of index buying and try to convince them to panic and sell the market lower, to negate the positive impact of the index buying this week," the dealer said, referring to index funds.

Prices at 5:14 p.m. EST (2213 GMT)

LAST/ NET PCT CLOSE CHG CHG US crude 93.15 -0.04 0.0% Brent crude 111.94 0.54 0.5% Natural gas 3.218 -0.048 -1.5%US gold 1662.20 15.90 1.0% Gold 1659.94 1.34 0.1% US Copper 367.20 -0.60 -0.2% LME Copper 8080.00 9.00 0.1% Dollar 80.336 0.080 0.1%US corn 688.75 3.25 0.5% US soybeans 1413.75 3.00 0.2% US wheat 750.50 -0.75 -0.1%US Coffee 148.15 -2.25 -1.5% US Cocoa 2215.00 -52.00 -2.3% US Sugar 18.67 -0.19 -1.0%US silver 30.465 0.383 1.3% US platinum 1580.60 26.80 1.7% US palladium 667.85 -2.15 -0.3%