SOFTS-Coffee hits 2-month highs, cocoa drops from 1-month peaks

* North America cocoa grind near top end of forecasts

* Short-covering lifts coffee futures

* White sugar spread widens, pressuring prices

* COMING UP: CFTC Commitment of Traders report at 2030 GMT

(Updates prices, adds analyst comment and second byline/dateline)

NEW YORK/LONDON, Jan 18 (Reuters) - Coffee futures trading in New York and London extended their gains on Friday, inching up to the highest levels in two months, while cocoa turned lower on origin selling after climbing to a one-month high on grind data.

ICE raw sugar was little changed, flirting with a 2-1/2-year low as plentiful supplies provide a bearish backdrop. Meanwhile, Liffe white sugar fell to the lowest since June 2010 as the discount for the benchmark contract widened sharply.

Arabica coffee futures on ICE climbed to the highest level since Oct. 31 on short-covering and reports of coffee leaf rust in Central America.

Robusta futures on Liffe also inched up to a two-month high before paring gains.

"We're seeing coverage in both markets to alleviate the heavy sales we've been getting from Vietnam," said Sterling Smith, futures specialist for Citigroup in Chicago.

"There's a very large short position that needs to work itself off here."

Speculators currently hold a large net short position.

ICE March arabica coffee was up 1.25 cent, or 0.8 percent, at $1.5675 per lb at 12:36 p.m. EST (1736 GMT). The contract was on track for a weekly gain of 1.1 percent.

March robusta coffee futures turned lower, finishing down $2 at $1,976 a tonne, after hitting a two-month high at $1,989.

Rabobank said in a research note that "disciplined" grower selling coupled with concerns about 2013/14 Central American output are forecast "to reduce speculators shorts and drive prices higher in the first quarter of 2013."

May cocoa futures on Liffe closed flat at 1,481 pounds a tonne, after rising earlier to a four-week peak for the second month of 1,490 pounds.

The December 2012 contract soared to a premium of more than 70 pounds in the run-up to expiry late last year.

Front-month March was trading at a premium to May <LCC-1=R> of around 1 pounds, down from 9 pounds at the close on Thursday but compared with a discount of around 5 pounds to 15 pounds for much of this month.

One broker said this week had seen "panic short-covering of the spread. There are shorts around and they don't want to get caught after the way December went."

ICE March cocoa futures finished down $15, or 0.7 percent, at $2,285 per tonne, after hitting a one-month high at $2,313.

Dealers said fourth-quarter North America grind data was initially mildly supportive, while London's market was also buoyed by the nearby premium linked to the current low level of certified stocks.

North American cocoa grindings rose 0.95 percent in the fourth quarter of 2012 to 120,053 tonnes from the last quarter of 2011, data from the National Confectioners Association said on Thursday.

Expectations had ranged from 5 percent lower to 1 percent higher so the figure was at the upper end of forecasts.

"I thought it might support prices a bit but we've hit a wall of selling again. There is some cocoa above the market," said one broker, referring to origin selling which capped an early advance in prices.

Raw sugar futures were little changed in choppy dealings, hovering near last month's two-year low as crop weather improved in top grower Brazil.

March raw sugar futures on ICE were up 0.02 cent, or 0.1 percent, at 18.44 cents a lb as the market continued to hover just above a two-year low of 18.31 hit in December.

Dealers said the recent decline in prices did appear to be triggering a pick-up in physical offtake with talk that China may have bought some sugar in the last few days.

The market was also underpinned by lower-than-expected production in Thailand, a main exporter.

"Fundamentally, the market is in oversupply, but concerns about the Thai crop, ethanol demand in Brazil and production in India are expected to constrain selling and price moves below 18 cents a lb," Rabobank said in a research note.

March white sugar on Liffe dropped $4.90, or 1 percent, to $492.60 per tonne, after hitting $491.80, the lowest for the spot contract since June 2010.

The market was weighed down by abundant supplies that applied pressure on the March/May spread. The discount of March grew to $10.30 per tonne versus May, the biggest since November 2009.

(Additional reporting by Marcy Nicholson in New York; Editing by Alison Birrane and Grant McCool)