* Coffee council pegs Brazil 2014 output down 4.5 pct y/y
* ECA data shows European Q1 grind up 0.4 pct, disappoints
* London sugar spread widens to sharpest since Nov. 2013
(Rewrites throughout with forecasts, updated prices, quotes; adds byline, NEW YORK dateline)
NEW YORK/LONDON, April 10 (Reuters) - Arabica coffee hit a more than two-year high on Thursday on low crop forecasts amid renewed fears that a drought will severely cut top grower Brazil's output in the coming seasons.
Cocoa futures tumbled after disappointing demand data but raw sugar futures on ICE Futures U.S. were little changed.
Arabica coffee prices hit their highest level since February 2012, having gained some 20 percent in the last week alone, as deteriorating prospects for Brazil's production caused speculators to add to bullish bets.
Benchmark ICE May arabica coffee was up 6.25 cents, or 3.1 percent, at $2.061 cents per lb at 12:14 p.m. EDT (1614 GMT) after striking a more than two-year peak of $2.0780 as reduced crop outlooks for Brazil stoked buying.
Coffee output in Brazil is expected to fall 4.5 percent to 47 million 60-kilogram bags of beans this season from a year ago, the country's coffee industry association Abic said.
Fears over crop damage after a record hot January and February began to renew last week due to forecasts of dry weather and a low forecast on Friday from the Coffee Crops Council that pegged output in 2014 as low as 40.1 million bags.
"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, who noted the 2015/16 crop year could be a "bigger disaster" than 2014/15.
"The drought is potentially undermining the whole structure of production of the coming years because the trees are so severely weakened."
July robusta coffee futures on Liffe rose $31, or 1.5 percent, to $2,164 per tonne. The London market has tracked but not matched ICE coffee's gains so far this year.
COCOA GRIND BELOW EXPECTATIONS
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 dropped the most in three weeks, closing down $41, or 1.4 percent, at $2,970 a tonne.
"We were already have trouble holding the $3,000 level and now with this weak European grind data, we're seeing fund liquidation pressure," said Sterling Smith, a futures specialist with Citigroup in Chicago.
Liffe July cocoa futures finished down 18 pounds, almost 1 percent, at 1,869 pounds.
Justin Grandison, director of cocoa brokerage at ABN Amro Clearing Bank NV said that the grind data "highlights that a lot of grindings go on now in origin" and that grinding capacity had expanded in West Africa, the world's largest producing region.
In sugar, the market continued to be underpinned by concerns of potential for an El Nino weather event curbing production after unfavorable weather so far this year in Brazil, the world's biggest producer and exporter.
Raw sugar futures were firm with front-month ICE futures up 0.02 cent, or 0.1 percent, at 17.06 cents a lb.
Prices were pinned for a seventh straight session of tight, rangebound trade as worries over lower output in top grower Brazil were offset by weak demand due to high inventories.
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 fell $4.40, or nearly 1 percent, at $450.30 a tonne.
Dealers said they expected some Guatemalan white sugar, and possibly a parcel of Mexican supplies, potentially totalling 100,000-150,000 tonnes, to feature in the delivery at expiry of the Liffe May contract on April 15.
A widening spread suggested buyers were scarce. The discount of the front-month to the second-month <LSU-1=R> sank as low as $20.40 a lb during the day's trade, the biggest such discount since November 2013.
(Additional reporting by David Brough in London; Editing by David Evans and Grant McCool)