SOFTS-ICE coffee hits 33-month low, sugar drops most in 5 mths

* ICE arabica coffee falls on euro zone concerns, hefty supplies

* Sugar posts largest daily loss since November 2012

* Cocoa mid-crop output from West Africa eyed - dealers

(Adds comment, updates with closing prices; adds byline, New York dateline)

NEW YORK/LONDON, March 18 (Reuters) - Arabica coffee futures on ICE sank to a 33-month low on Monday and ICE raw sugar futures posted the largest daily loss since October as commodity markets retreated in the face of heightened concern about the economic crisis in the euro zone.

Cocoa futures also fell, also pressured by macroeconomic worries.

The surprise decision by euro zone leaders to part-fund a bailout of Cyprus by taxing bank deposits sent shockwaves through financial markets on Monday, with shares and the bonds of struggling euro zone governments tumbling.

The dollar index climbed against a basket of six currencies.

ICE May arabica coffee dropped 3.15 cent, or 2.3 percent, to settle at $1.3435 per lb after sinking to $1.3405, the lowest level for the second-month contract since early June 2010 and the largest daily loss in two weeks.

"The Cyprus situation is pushing money into the dollar and cooling appetite for risk right now," said Sterling Smith, futures specialist with Citigroup in Chicago.

The entire 19-commodity Thomson Reuters-Jefferies CRB index declined on Monday.

Rattled markets exacerbated losses in the coffee market, in which expectations of ample supplies have been pressuring prices. Dealers said the continued build in ICE certified coffee was keeping the market on the defensive.

The market has struggled to absorb last year's large crop in top grower Brazil while the outlook for the next harvest also appears generally favourable.

"The market isn't interested in taking off all of the coffee that is available in Brazil," said James Cordier, principal and founder of Optionsellers.com.

Commercial dealers continue to purchase in a hand-to-mouth manner, avoiding buying into the falling market as much as they can, he said.

Sales of Brazil's 2012/13 coffee crop were still well behind the prior season with 71 percent of the beans sold by February 28, down from 87 percent a year earlier, agriculture analysts Safras & Mercado said on Friday.

Trading volumes were heavy on Monday, at nearly 28,000 lots, compared with a 30-day average of about 22,000 contracts, preliminary Thomson Reuters data showed.

Open interest in arabica coffee futures climbed to 171,766 contracts on Friday, ICE data showed on Monday.

That was the highest level since July 2010, reinforcing expectations that speculators will maintain their bearish stance in a market weighed by hefty global supplies.

Speculators have continued to increase their bearish bets on coffee futures and options.

May robusta coffee futures on Liffe closed down $16, or 0.7 percent, at $2,176 a tonne, off a five-month high of $2,216 a tonne reached last week.

Speculators increased a net long position in robusta coffee futures and options on NYSE Liffe in the week to March 12, exchange data showed on Monday.

SUGAR SETBACK

The declining financial markets helped pressure raw sugar futures on ICE to their steepest daily loss since mid-October, erasing gains made during a short-covering rally over the previous week and a half.

May raw sugar futures on ICE plunged 0.6 cents, or 3.2 percent, to close at 18.29 cents a lb, after falling as low as 18.24 cents earlier in the session.

A large decrease in the net short positions held by speculators in raw sugar futures and options was seen as contributing to Monday's losses.

"In the last week speculators liquidated more shorts than people thought," said a London-based dealer, adding this reduced the potential for future short-covering rallies.

Speculators cut their net short position in raw sugar contracts on ICE Futures U.S. by more than half in the week ended March 12.

ICE raw sugar futures failed to close above a resistance level of 19 cents on Friday, seen contributing to downward pressure on Monday.

Trading volumes were heavy, at nearly 143,000 lots, compared to a 30-day average of under 89,000, preliminary Thomson Reuters data showed.

May white sugar on Liffe fell $12, or 2.2 percent, to finish at $527.40 a tonne.

Cocoa futures on ICE also joined the commodities retreat with the most-active May contract falling $27, or 1.3 percent, to close at $2,088 a tonne.

Dealers said the market continued to keep a close watch on the outlook for mid-crops in West Africa.

Cocoa arrivals at ports in top grower Ivory Coast reached around 998,000 tonnes by March 17 since the start of the season in October, exporters estimated on Monday, compared with 1,025,000 tonnes in the same period of the previous season.

Liffe July cocoa futures finished down 13 pounds, or 0.9 percent, at 1,414 pounds per tonne.

(Editing by Alison Birrane, James Jukwey; and Chizu Nomiyama)