SOFTS-Sugar sinks to 3-1/2 year low on heavy chart-based selling
* Potential for exports from India weighs on sugar
* Arabica coffee resumes advance after setback
* Cocoa supported by expected stronger grind data
(New throughout, updates prices; adds trade comment, second byline, NEW YORK dateline)
NEW YORK/LONDON, Jan 8 (Reuters) - Raw sugar prices on ICE slumped to a 3-1/2 year trough on Wednesday, extending a long-term downtrend on heavy technical selling and bearish options dealings, while arabica coffee jumped on short-covering.
Cocoa futures climbed in rangebound dealings while Liffe robusta coffee dropped.
Volume of raw sugar futures trading on ICE Futures U.S. soared to above 112,000 contracts by 12:09 p.m. EST (1709 GMT), already 15 percent above the 250-day average for the full session, preliminary Thomson Reuters data showed.
"This is the new contract low touching off sell-stops and new technical selling," said Michael McDougall, a vice-president for brokerage Newedge USA, adding that this appeared to be liquidation and possibly new selling.
"It is also activating heavy option trading."
May and July options both saw heavy puts, which gives the owner the right to sell, at 15 cents a lb, McDougall said.
March raws on ICE were down 0.30 cent, or 1.9 percent, at 15.76 cents a lb by 12:10 p.m. EST after touching 15.72 cents, the weakest level for the front month since July 2010.
Rebalancing by index funds was expected to enter the market near the session close.
Prices have fallen by over 50 percent from a more than 30-year peak set in early 2011.
"We are seeing the first improvement (in the global supply balance) but it is just not strong enough to break the downtrend," said Credit Suisse analyst Tobias Merath.
Dealers said prices may have to fall further to stimulate increased demand for the sweetener.
"There is little fundamental news currently about to support values and the tail of the Brazil crop continues to yield more supply," said Nick Penney, co-head of the softs department at Sucden Financial.
March white sugar on Liffe fell $7.30, or 1.7 percent, to $432.20 per tonne.
ARABICA COFFEE CLIMBS
Arabica coffee futures maintained their recent volatility and rallied on short-covering after tumbling on Tuesday. This week, the market has been roiled by a wide range of 2014/15 crop forecasts for Brazil, including a sharply diminished outlook, creating some confusion among dealers.
ICE March arabica futures were up 3.35 cents, or 2.9 percent, to $1.2060 per pound, near Tuesday's five-month high at $1.2260.
The recent advance has also been fueled by the rebalancing of index funds in the new year.
Coffee is up around 20 percent from November's seven-year low, and showing signs of turning into a bull market.
"The market takes some time before you can definitely say this is a change in trend but, in contrast to sugar, coffee managed to break above the first technical resistance line," Credit Suisse analyst Merath said, adding the next major resistance level was $1.30.
March robusta futures on Liffe fell $3, or 0.2 percent, to $1,712 a tonne.
Cocoa prices were higher, underpinned partly by expectations that fourth quarter European grind data, to be issued next week, should show a year-on-year rise of around 5 to 7.4 percent.
ICE March cocoa futures settled up $25, or 0.9 percent, at $2,700 a tonne while May futures on Liffe finished up 12 pounds, or 0.7 percent, at 1,716 pounds a tonne.
(Additional reporting by Sarah McFarlane in London; Editing by Keiron Henderson, Anthony Barker and Marguerita Choy)