SOFTS-ICE arabica coffee closes down after hitting near 2-mth high
* ICE arabica coffee rally prompts trade selling -dealer
* Raw sugar futures seen up on Brazil rains
* Cocoa futures climb on short-covering -trade
(Recasts lead paragraph, updates with closing prices; adds coffee market comment)
NEW YORK/LONDON, July 18 (Reuters) - ICE arabica coffee turned lower after touching an almost two-month high on Thursday as the trade sold into a rally prompted by cold weather forecasts in top-grower Brazil, while raw sugar futures rose on Brazil rain expectations.
ICE cocoa rose, heading for its fourth weekly gain, as expectations of lower production in Ivory Coast spurred short covering.
September arabica coffee on ICE Futures U.S. closed down 0.4 cent, or 0.3 percent, at $1.2755 per lb, reversing earlier gains made on short-covering prompted by forecasts of cold weather in Brazil.
The surge to an intraday high of $1.3400 a lb, the highest price since late May, prompted selling.
"The bigger traders are taking advantage of this rally," said James Cordier, principal and founder of Optionsellers.com, noting the coldest temperatures would likely not affect key growing regions.
"The trade itself, especially in Brazil, know these freeze scares."
Brazil-based weather forecaster Somar said that cold weather could cause freeze damage to coffee crops, and World Weather Inc said cold weather may produce frost and freezes in areas of Brazil, adding fuel to a rally that began earlier this week amid a frost forecast from MDA Weather Services.
Still, the second-month contract was headed toward a weekly gain of almost 7 percent, the largest since September, as it climbed further from a four-year low of 1.1710 cents a lb hit on June 20 amid expectations of huge Brazilian output.
Liffe September robusta coffee closed up $20, or 1 percent, at $1,970 a tonne, after touching $1,997, the highest level since May.
Premiums for Indonesian robusta fell to their weakest level since April on Thursday after farmers increased deliveries to raise cash ahead of a Muslim festival, spurring buying by local roasters.
RAW SUGAR CLIMBS
October raw sugar futures on ICE edged up 0.1 cent, or 0.6 percent, to settle at 16.18 cents per lb, paring gains that brought prices to a one-week high of 16.45 cents on worries that rain may damage Brazil's cane crop.
The front month was headed for its first weekly gain in five weeks.
"Heavy rain that precedes the cold early next week will delay harvesting, with Parana and southern Sao Paulo wettest," said World Weather senior agricultural meteorologist Drew Lerner, though he noted that cool weather following the rains should leave the crop in favorable condition.
Technically driven dealings underpinned prices, dealers said.
"We're seeing a technical bounce because we held the 16 (cent) level," said Boyd Cruel, softs analyst for Vision Financial Markets in Chicago, describing 16 cents as a key psychological level.
The front month touched a three-year low of 15.93 cents set on Tuesday, as expectations of ample output from Brazil weighed.
Liffe October white sugar finished up $4.20, or 0.9 percent, at $463.90 a tonne.
September cocoa futures on ICE were up $47, or 2 percent, to settle at $2,347 a tonne. The contract was headed for a weekly gain of about 5 percent, the largest since early June and its fourth straight up week.
Ivory Coast, the world's top cocoa grower, expects production to fall 1.4 million tonnes in the 2013/14 season, from over 1.5 million tonnes this season.
The report spurred short covering, adding to gains seen this week on news that the top producer had already forward sold a large portion of its 2013/14 crop and Asian second-quarter grind data from the Cocoa Association of Asia that showed a 2 percent rise from the same period last year.
September cocoa in London closed up 23 pounds, or 1.5 percent, at 1,608 pounds a tonne, after touching 1,610 pounds, the highest price since December.
North American second-quarter grind data will be released on Thursday around 4 p.m. EDT, with analysts expecting a rise of 2 to 5 percent year-over-year.
(Editing by Marguerita Choy and Jim Marshall)