(Rewrites throughout, updates prices; adds comment, NEW YORK dateline) NEW YORK/LONDON, April 5 (Reuters) - New York cocoa futures on ICE rose on Thursday, buoyed by arbitrage buying that sharply narrowed the May/July spread while the London May cocoa discount versus the July contract widened on the London market.
* May New York cocoa settled up $33, or 1.3 percent, at $2,508 per tonne.
* Despite the weaker British pound , traders said heavy arbitrage dealings that involved buying New York cocoa and selling London, buoyed U.S. prices.
* This caused the May discount to July <CCK8-N8> to narrow to as much as $25 from $50 the prior session. Meanwhile the London May discount to July <LCCK8-H8> widened to as much as 40 pounds, the biggest for the contract.
* New York cocoa has held a rare premium over London since 2017.
* "A lot of people have this arbitrage on and it's hurting," one U.S. trader said, adding that it appeared someone was "throwing in the towel."
* May London cocoa settled up 3 pounds, or 0.2 percent, at 1,728 pounds per tonne.
* The markets shrugged off higher-than-expected bean arrivals in top grower Ivory Coast and expectations the country will produce a large crop.
* May raw sugar settled up 0.08 cent, or 0.7 percent, at 12.35 cents per lb, edging up from last week's 2-1/2-year low of 12.18 cents.
* Dealers continued to keep a close watch on trade tensions between the United States and China.
* "One of the short-term potential bullish arguments is what would happen in a larger 'risk-off' environment which prompts speculators to reduce their positions," said James Liddiard of consultancy Agrilion, noting speculators would then be buying to cover a net short position.
* August white sugar settled up 40 cents, or 0.1 percent, at $343.60 per tonne.
* The European Commission forecast on Thursday that white sugar production in the EU would fall 3 percent in 2018-19 to 20.4 million tonnes, after a nearly 25 percent rise the previous year when producers were encouraged by the end of quotas in the bloc.
* May arabica coffee settled up 0.65 cent, or 0.6 percent, at $1.1755 per lb, buoyed by funds rolling forward
short positions to the July contract. * May robusta coffee settled up $4, or 0.2 percent,
at $1,759 per tonne.
* Vietnam, the world's top robusta producer, is expected to export 100,000 to 140,000 tonnes (1.7 million to 2.3 million 60-kg bags) of coffee in April, traders said.
(Reporting by Marcy Nicholson in New York and Nigel Hunt in London; editing by David Evans and James Dalgleish)