SOFTS-ICE sugar rises after flirting with lowest level since 2010

* Sugar aided by potential for rising inflation in Far East

* Origin selling keeps cocoa market on the defensive

* Arabica falls despite previous session's outside reversal up

(New throughout, updates prices; adds trade comment, second byline/dateline)

NEW YORK/LONDON, April 4 (Reuters) - Raw sugar futures on ICE turned higher on Thursday as hopes that monetary stimulus in Japan will spur more buying lifted prices that had dropped to nearly three-year lows on the expectation that more Indian supplies will reach the global market.

Coffee and cocoa futures on ICE Futures U.S. and Liffe fell on spillover weakness from the weak commodity complex, weighed by an increase in new U.S. unemployment benefit claims, reigniting worries about stalling economic growth.

The Thomson Reuters-Jefferies CRB index, a global benchmark for commodities made up of 19 markets, fell for the fourth straight day to a nine-month low as the U.S. dollar was firm but off its highs.

A strong greenback often pressured dollar-traded commodities as it attracts selling by investors holding other currencies.

Dealers said the modest rise in sugar prices 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 0.09 cent, or 0.5 percent, to 17.59 cents a lb by 12:19 p.m. EDT (1619 GMT), after falling to a session low at 17.50 cents. 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 short-lived 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.

India, the world's second biggest sugar producer and No. 1 consumer, will no longer force mills to sell sugar to the government at a discount and will not limit the amount they can sell in the open market, Food Minister K.V. Thomas told journalists on Thursday after the cabinet agreed the changes.

"It's allowing these guys to sell more sugar," said one U.S. dealer.

This spurred a wave of selling, bringing the market to its session low at 17.50 cents, just a hair above the previous session's lowest level in nearly two years at 17.47 cents.

"India is freeing up sugar, which is bearish, but the market is up because this has already been factored in," said Sterling Smith, futures specialist with Citigroup in Chicago.

May white sugar on Liffe remained lower, and was down $1.60, or 0.3 percent, at $503.30 a tonne.

Top sugar exporters Brazil and Thailand are raising production to cut costs in an effective price war, aggravating an already heavily over supplied 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 dealers kept an eye on May options ahead of their expiry on Friday.

May cocoa on ICE closed down $9, or 0.4 percent, at $2,141 a tonne with persistent origin selling and a generally favorable mid-crop outlook in top grower Ivory Coast keeping the market on the defensive.

Total ICE cocoa futures volume was heavy on May/July spreading, already exceeding 45,000 lots, the highest since Feb. 11 and up from the previous session's active day at 44,947 lots, ICE and preliminary Thomson Reuters data showed.

Liffe July cocoa futures fell 12 pounds, or 0.8 percent, to settle at 1,452 pounds a tonne.

Arabica coffee futures on ICE were also lower with May down 0.50 cent, or 0.4 percent at $1.3895 per lb, after soaring more than 2 percent in an outside reversal on Wednesday.

"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.

"It's tough to fight the headwinds when everything is coming off here, it's pretty hard to maintain the strength it had yesterday," the U.S. dealer said.

July robusta coffee futures on Liffe fell $26, or 1.3 percent, to $2,056 a tonne.

(Additional reporting by Chris Prentice in New York; Editing by David Gregorio)