* Cocoa slips from peak but outlook remains bullish
* Arabica coffee also retreats from multi-year high
* Raw sugar rebounds as crude oil surges
NEW YORK/LONDON, Feb 24 (Reuters) - ICE cocoa futures closed quietly lower after building in a bit more of a risk premium and hitting a 32-year high on Thursday as tensions mounted over supplies from top producer Ivory Coast.
Arabica coffee futures finished lower in its weakest two-day performance in a month, falling from the highest level in more than 30 years on investor liquidation.
Sugar futures, however, bounced after Wednesday's losses, feeling a lift from the strong crude oil futures market. Sugar is used to make biofuel.
The cocoa sector in Ivory Coast has been sucked into a post-election power struggle that threatens to reignite civil war, as terrified residents fled shooting in an Abidjan neighborhood and fighting erupted in Ivory Coast's west.
"If demand increases against the current backdrop in Cote d'Ivoire (Ivory Coast), then markets could rally further," Abah Ofon, analyst at Standard Chartered Bank, said.
ICE May cocoa <CCc2> inched down $6 to settle at $3,625 per tonne, after touching $3,645, the highest since January 1979.
The market remained in backwardation, when nearby contracts are more expensive than deferreds, typically indicating supply tightness or concerns. The May premium a $65 compared to July <CCN1>, slightly wider than $64 Wednesday.
"I think (the risk premium) is now fully into the market so the question now is where do we go from here," one veteran U.S. cocoa dealer said.
"A lot of the shorts have no money in the market right now. They've been selling, selling, selling and the market's been going against them, so you start to worry about the health of the shorts in the market."
Liffe May cocoa <LCCc2> finished down 7 pounds 2,350 pounds per tonne, having earlier hit a 7-month high of 2,368 pounds per tonne. The May premium closed at 76 pounds, from 83 pounds on Wednesday.
Coffee prices fell, with arabicas slipping well below the peak of $2.784 a lb hit on Tuesday, the highest level in over 30 years, as investors liquidated long positions after follow-through buying faded away,
dealers said.
ICE May arabica coffee <KCc2> dropped 4.80 cents or 1.8 percent to close at $2.6465 per lb. Liffe May robusta coffee <LRCK1> finished down $39 at $2,329 per tonne.
Total open interest fell to a one-year low at 125,045 lots on Feb. 23, down 1,283 lots from the previous day, ICE data showed.
A shortage of high quality arabica beans has fueled the coffee rally, after key producer Colombia saw several consecutive smaller crops, causing a drawdown of stocks.
Colombia's coffee production this year is expected to reach at least 9 million 60-kg bags, the highest level since 2008, as better weather helps flowering, the country's coffee federation said.
"News from Colombia regarding the health of the crop has been encouraging but the market will prefer to see this in physical stocks," Ofon said.
Dealers said that coffee roasters have been increasing the use of cheaper robusta coffee in their blends where possible.
MORE REALISTIC SUGAR PRICES
ICE raw sugar bounced after Wednesday's sell-off, as dealers eyed expiry of the March contract <SBH1> on Monday, and as the strong crude oil market helped lift prices. Sugar can be processed into the alternative energy source ethanol.
Oil surged to 2-1/2-year highs near $120 a barrel as the revolt in Libya choked exports, then eased as Saudi Arabia assured European refiners the kingdom could step in to fill any supply shortfalls. [O/R]
ICE most-active May raw sugar contract <SBK1> rose 0.47 cent to end at 27.83 cents per lb, after hitting a session low at 26.90 cents, the lowest since Dec. 30, 2010.
Liffe May white sugar <LSUK1> ended up $2.40 at $705 per tonne.
"After the market fell yesterday, we are at more realistic levels. There has been a lack of physical offtake," said a London-based sugar futures dealer.
Sugar futures were also supported by news that the European Union has ditched plans for a reduced-duty tendering process for sugar imports, in favor of a fixed 300,000-tonne import quota with duties set at zero.
* ICE sugar and ICE coffee in cents per lb, ICE cocoa, Liffe sugar and
Liffe coffee in dollars per tonne. Liffe cocoa in pounds per tonne.
Source: (marcy.nicholson@thomsonreuters.com; +1 646 223 6043; Reuters Messaging: marcy.nicholson.reuters.com@reuters.net))
