Markets float by macro sentiment

NEW YORK: Soft commodity futures jumped on Tuesday as investor sentiment perked up on news that Europe is coming to grips with its debt crisis and a global recession will be avoided.

The rally in global stocks fuelled optimism about demand for coffee, cocoa and sugar. Stocks headed for their largest daily gain in 16 months, matched by gains in gold and oil markets.

"Everybody is feeling good about life again. We survived another meltdown so investors are buying. It's a pretty big relief rally," said The Price Group senior analyst Jack Scoville.

December arabica coffee futures on ICE gained 4.90 cents or 2.07 percent to close at $2.4085 per lb. London's November robusta coffee added $32 to close at $1,986 per tonne.

It was the second surge in a row for arabica coffee after it closed at an eight-month low on Friday but held strong support around $2.30 per lb, where roaster and commercial buying emerged.

"Since then we've been seeing a bounce led by commodity strength across the board, the weak US dollar and the strong equity markets," said Boyd Cruel, softs analyst for Vision Financial Markets in Chicago.

Even as Arabicas climbed out of technically oversold levels, futures were set to close the quarter lower for the first time since the fourth quarter of 2008.

"I think we've done a lot of damage to shake people out," said Scoville.

He said with the harvest in all soft commodities about to get started, prices of sugar, coffee and cocoa should have "limited upside."

Sugar dealers talked of increased physical price inquiries and buyers took advantage of the sell off late last week.

ICE March raw sugar contract increased 0.42 cent to end at 24.70 cents a lb. December white sugar futures on Liffe increased $14.50 to finish at $648.50 a tonne.

"With support basis March (in raw sugar) again at 24 cents and anecdotal evidence of off-take, we anticipate either a consolidation or a rise in values towards next resistance at 25.38 cents and the 200-day average at 25.83 cents," said Nick Penney of brokerage Sucden Financial.

Sugar output from Brazil's main centre-south region reached 23.1 million tonnes since the start of the season, down 8 percent from a year earlier, industry group Unica said Tuesday.

Cocoa futures were steadier, although analysts said the upside is capped by favourable weather in West Africa boosting 2011-12 crop prospects.

New York's December cocoa contract went up $43 to finish at $2,721 per tonne. London's December cocoa futures rose 12 pounds to finish at 1,759 pounds per tonne.

"The supply of cocoa is more than abundant," said Keith Flury, a senior commodity analyst with Rabobank. "A lot of bearish harvest pressure is going to happen."

"You cannot discount the possibility of 2011-12 surplus" said Kona Haque, an analyst at Macquarie Bank.

Copyright Reuters, 2011