SOFTS-Sugar pierces two-week high as shorts run for cover
(New throughout, updates prices and market activity)
* Sweetener pares gains after hitting technical resistance
* Kingsman forecasts lower 2013/14 sugar surplus
NEW YORK/LONDON, Feb 1 (Reuters) - Raw sugar futures on ICE rose to 19 cents for the first time in two weeks on Friday on short-covering and improving sentiment, although prices pared gains after hitting technical resistance.
Robusta coffee futures on Liffe posted steep gains amid a rebalancing of the Rogers International Commodity index in favor of robusta over ICE Futures U.S. arabica and concern over Vietnamese supplies. Cocoa settled unchanged.
Sugar prices pulled away from last week's more than two-year low, rising as high as 19.02 cents in early trade as speculative shorts ran for cover after an influential forecast the global surplus will shrink by 40 percent next season.
"There's been a shift of news from bearish to slightly supportive," said Boyd Cruel, softs analyst for Vision Financial Markets in Chicago, of the sugar market.
The government of Brazil, the world's top sugar producer, said this week it will boost ethanol content of its regular gasoline blends, which gave sugar prices a lift.
March raw sugar futures on ICE eased off highs after testing the 50-day moving average, but they settled up 0.11 cent, or 0.60 percent, at 18.89 cents a lb. That was well above the more-than-two-year low of 18.06 cents touched on Jan. 23.
Forecasters expect the global sugar surplus to fall to 6.28 million tonnes in 2013/14 from 10.31 million tonnes in the prior year as some producers switch out of sugar due to a sharp slide in prices, analyst Kingsman said on Friday.
"This is changing the rhetoric. If ending stock estimates are going south, even just a bit, it's hard to keep the market going lower," said Jack Scoville, vice president for the Price Futures Group in Chicago.
While some of Friday's gains were attributed to short covering, investors have also placed new bets. On Thursday, open interest surged almost 8,300 lots to 835,283, its highest level in three years.
A huge speculative net short will keep the market vulnerable to further short-covering rallies.
"I can't see prices holding at these levels with so much sugar. Sooner or later it's going to sag," said a London-based broker.
March white sugar on Liffe rose $3.10, or 0.6 percent, to settle at $502.50 a tonne.
Gains in soft commodities were in line with broader equity and commodity markets after encouraging U.S. data that raised hopes that the world's biggest economy continued its tentative recovery. U.S. stocks jumped to five-year highs.
Employment grew modestly in January, with 157,000 jobs added in the month, slightly below expectations for 160,000. Still, figures for November and December were revised upwards.
Other reports showed growth in the U.S. manufacturing sector picked up in January to its highest level in nine months, U.S. consumer sentiment rose more than expected last month, while December construction spending also beat forecasts.
COFFEE DISEASE WORRIES
May robusta coffee futures rose $44, or 2.2 percent to settle $2,055 a tonne.
Robusta futures have gained 4.4 percent since Wednesday's close, posting the front-month contract's largest two-day increase since July 2012.
The boost came as the Rogers index moved out of from arabica futures into Liffe robusta.
"There has now been a strong end to the week seen in the robusta market, which in truth has been expected, as we have now completed the third day of the London/New York rebalancing," Sucden Financial said in an afternoon note on Friday.
Robusta prices have seen strong European demand for the beans and concern over lower output from Vietnam, the world's largest producer.
March arabica coffee futures on ICE gained 0.01 cent, or 0.7 percent, to settle at $1.4795 per lb.
While concerns over damage from leaf rust known as roya to Central American output have had limited impact on prices, dealers said the disease has also given a boost to differentials on the physical market in the region.
The narrowing of the gap between Brazil's on and off year biennial arabica crop cycle - with a record off-year crop expected this season - has been bearish for prices.
"It's because of different plant management, more robusta being grown, and because trees are being grown in areas less prone to frosts," said the broker.
A slight improvement in the outlook for cocoa crops in West Africa helped to cap any rebound from Thursday's steep fall, although analysts still expect a global deficit in 2012/13.
March cocoa futures on ICE closed unchanged at $2,205 a tonne after a choppy day of trading. The contract fell to $2,155 on the previous day, the weakest level for the front month since June 2012.
"The market is taking a breather after that dramatic day," Scoville of Price Futures Group. Brokers expect origin selling to keep a lid on prices.
May cocoa futures on Liffe were up 7 pounds, or 0.5 percent, to settle at 1,444 pounds a tonne.
(Additional reporting by Nigel Hunt; Editing by Jason Neely, Grant McCool and David Gregorio)