SOFTS-ICE sugar up 3.1 pct as shorts cover, robusta at 5-mth high
* Raw sugar volume nearly three times 250-day average
* Short-covering lifts robusta coffee
* Large cocoa mid crop expected in West Africa
* Lower dollar helps support cocoa market
(New throughout, updates closing coffee/sugar prices)
NEW YORK/LONDON, March 7 (Reuters) - Raw sugar futures on ICE surged more than 3 percent on Thursday as active short-covering pushed the market to its biggest one-day gain in 3-1/2 months, while Liffe robusta coffee jumped to a five-month high due to dry conditions in top grower Vietnam.
Cocoa futures on ICE initially inched down to a nine-month low but then posted the largest daily gain in a month in reaction to a weaker dollar and ideas that the recent decline was overdone amid expectations of an impending supply deficit.
May raw sugar futures on ICE Futures U.S. closed up 0.57 cent, or 3.1 percent, at 18.77 cents per lb, the biggest daily percentage jump since Nov. 19, 2012. The spot contract is on track to climb nearly 5 percent on the week, its biggest weekly surge since early October.
"Brazil is going to be very enthusiastic about making ethanol at current price levels. With that, there's going to be an idea that ethanol will be at a premium," said Sterling Smith, futures specialist at Citibank in Chicago.
"Our corn supplies here in the U.S. are pretty tight and we're going to see, I think, very robust ethanol imports from Brazil ... and that's helping to push prices higher."
This, combined with a break above 18.46 cents, basis May, spurred heavy short-covering, dealers said.
Speculators currently hold a large net short position.
Total volume exceeded 178,000 lots, nearly three times the 250-day average, preliminary Thomson Reuters data showed.
Dealers said sugar prices were also supported by a combination of rising diesel prices and the expected removal of taxes for ethanol in top producer Brazil.
Any move that would guide more cane to ethanol production, and away from sugar production, could help deplete the large global surplus of the sweetener, which has been pressuring prices to recent 2-1/2-year lows.
Climbing diesel prices have increased the cost of getting sugar to port, and are expected to have an impact on the sugar/ethanol production split in Brazil, said a European sugar analyst.
The Brazilian government plans to exempt fuel ethanol from certain taxes at the pump to help the country's cane industry.
"Brazilians will soon start diverting sugar into ethanol in a bigger way, and that's support to this market," Scoville of Price Futures Group said.
Recent dips to the 18-cent level have inspired buying, and raw sugar prices on ICE have been recovering after they have reached those levels.
May white sugar on Liffe rallied $14.40, or 2.8 percent, to end at $532.60 a tonne.
May robusta coffee futures on Liffe climbed $41, or 1.9 percent, to settle at $2,154 a tonne, the highest settlement for the second position since Oct. 4, 2012.
The market jumped on talk that some dealers were having trouble buying beans from Vietnam, where crop conditions are unusually dry and irrigation reservoirs are shrinking.
"People finally noticed they were having trouble moving cash beans, they were having trouble buying," Smith said.
"I think that moved through the trade and that's what spurred the short-covering."
ICE May arabica coffee rose 1.85 cents, or 1.3 percent, to close at $1.4310 per lb.
Prices had been hovering near the low of $1.3760 that hit on Feb. 19. Expectations of a large crop from top grower Brazil pressured prices to their lowest levels since June 2010.
May cocoa on ICE Futures U.S. gained $20, or 0.98 percent, to settle at $2,062 per tonne, after earlier falling to $2,034, the lowest for the second-month contract since June 2012. It was the second-month contract's largest daily gain since Feb. 5.
"We're at a spot where the downside is running out of steam, and some of these lower levels are starting to spark demand," said Jack Scoville of the Price Futures Group in Chicago.
A weaker dollar, as the dollar index fell against a basket of six other currencies, helped support ICE cocoa, raw sugar and arabica coffee futures, Scoville said.
Cocoa prices had dropped sharply recently, pressured by a combination of favorable weather aiding West Africa's mid crop development and lagging forward sales from top growers Ivory Coast and Ghana, traders said.
"There's going to be a big mid crop so the market has taken a bearish tone," said a London-based broker.
May cocoa on Liffe gained 11 pounds, or 0.8 percent, to finish at 1,401 pounds per tonne.
(Additional reporting by Marcy Nicholson in New York; Editing by Alison Birrane, Helen Massy-Beresford and Bob Burgdorfer)