SOFTS-ICE sugar edges up but downside risks remain

* Origin selling keeps cocoa market on the defensive

* Sugar aided by potential for rising inflation in Far East

(Adds quotes, updates prices)

LONDON, April 4 (Reuters) - Raw sugar futures on ICE edged up on Thursday but remained close to the prior session's more than 2-1/2 year low with the upside potential capped by excess supplies.

Cocoa prices were lower, weakened partly by origin selling while arabica coffee futures also fell.

Dealers said the modest rise in sugar prices on Thursday was linked to a radical overhaul of monetary policy in Japan which may fuel inflation.

"If inflation is on the rise in the Far East, the sugar bulls argue, then the large buyers out there will be increasing stocks sooner rather than later," Nick Penney of Sucden Financial said in a market note.

May raw sugar futures rose 0.13 cent or 0.7 percent to 17.63 cents a lb by 1403 GMT. The front month contract dipped to 17.47 cents on Wednesday, its lowest level since July 2010.

Dealers expected any rebound in prices may, however, prove shortlived given abundant global supplies.

"There is a clear downtrend. We have the potential to come down to 17 cents (a lb) on May," said VTB Capital analyst Andrey Kryuchenkov.

Analysts expect a large global surplus in 2012/13, the second consecutive season when production has substantially exceeded demand, and the early outlook for 2013/14 indicates another surplus season is likely.

"The relentless increase in global sugar supplies over the past few seasons, and expectations of another global surplus in 2013/14, remains the overwhelming factor pushing global prices lower," analyst Luke Mathews of Commonwealth Bank of Australia said in a market note.

May white sugar on Liffe was off $0.70, or 0.1 percent, at $504.20 a tonne.

Top sugar exporters Brazil and Thailand are raising production to cut costs in an effective price war, aggravating an already heavily oversupplied global market as values slide to the lowest levels in over 2-1/2 years.

OPTIONS EXPIRY

Cocoa futures on ICE were lower with volume boosted by rolling forward of positions by index funds while the expiry of May options on Friday also provided a short-term focus.

May cocoa on ICE was down $25 or 1.2 percent at $2,125 a tonne with persistent origin selling and a generally favourable mid-crop outlook in top grower Ivory Coast keeping the market on the defensive.

"With origin around (selling) and industry well covered, it looks like you should sell rallies," one London dealer said.

Liffe July cocoa futures fell 19 pounds or 1.3 percent to 1,445 pounds a tonne.

Arabica coffee futures on ICE were also lower with May off 1.10 cents or 0.8 percent at $1.3835 per lb.

"The rallies in coffee just aren't' lasting at the moment. The structure is very wide and that isn't really instilling confidence in the market," one dealer said, referring to substantial discounts on nearby contracts.

Signals are mixed for New York May coffee as it tested again a trendline descending from the Oct. 3, 2012 high of $1.9160 per lb, according to Reuters market analyst Wang Tao.

July robusta coffee futures on Liffe fell $22 or 1.1 percent, to $2,060 a tonne.

(Reporting by Nigel Hunt; Editing by Alison Birrane)