SOFTS-Coffee hits 2-year high on drought-led rally

* ECA data shows European Q1 grind up 0.4 pct

* Arabicas hit highest level since Feb 2012

(Adds quote, updates prices)

LONDON, April 10 (Reuters) - Arabica coffee hit a more than two-year high on Thursday, as fears that a drought could severely cut top grower Brazil's output in the coming seasons kept a recent rally intact.

Cocoa futures fell, after Europe's first quarter grind came in below market expectations with grindings broadly in line with the same period a year ago, while sugar was higher.

Arabica coffee prices hit their highest level since February 2012, having gained almost 20 percent in the last week alone, as deteriorating prospects for Brazil's production caused speculators to add to bullish bets, sending prices higher.

Benchmark ICE May arabica coffee was up 6.4 cents, or 3.2 percent, at $2.0625 cents per lb at 1333 GMT. Earlier the market peaked at $2.0780.

"People are waking up to the fact that this isn't a one-year issue, it's at least a two-year issue," a European analyst said.

"The drought is potentially undermining the whole structure of production of the coming years because the trees are so severely weakened. 2015/16 could be a bigger disaster than 2014/15."

July robusta coffee futures on Liffe rose $26, or 1.2 percent, to $2,159 per tonne.


Cocoa prices weakened after European cocoa grindings rose 0.4 percent from the same period last year, below traders' expectations for a rise of around 3 percent.

May cocoa futures on ICE fell $45 or 1.5 percent to $2,966 a tonne.

"A few people were probably surprised to see the number coming in close to unchanged when a rise of 3 to 5 percent had been anticipated," said Justin Grandison, director of cocoa brokerage at ABN Amro Clearing Bank NV.

"As it didn't eventuate, some people who had priced in a positive number created a sell-off in the opening trades, in reaction to a number which is not deemed to be that positive."

"I think it highlights that a lot of grindings go on now in origin. We know that capacity has expanded in West Africa."

Liffe July cocoa futures were down 20 pounds or 1 percent at 1,867 pounds.

"When you take the European grind in the context of what's going on elsewhere I don't think the figure's too bad," the European analyst said, adding that grindings had risen in other parts of the world.

In sugar, the market continued to be underpinned by concerns of potential for an El nino weather event curbing production.

Raw sugar futures were firm with front-month ICE futures up 0.12 cent, or 0.7 percent, at 17.16 cents a lb.

Dealers said any fears of El nino had not triggered buying on the physical market where activity remained slow.

Weather concerns do not appear to have encouraged any increased demand from end destination buyers, a London-based broker said.

May white sugar futures on Liffe were down $1.30, or 0.3 percent, at $453.40 a tonne.

(editing by David Evans)