Markets gallop higher, outlook uncertain

    * Raw sugar ends up 4.2 pct as end-users pay up

    * Weak U.S. dollar buoys coffee, U.S. cocoa

    * Softs outlook seen taking cue from financial markets

    By Marcy Nicholson and Nigel Hunt

    NEW YORK/LONDON, Oct 13 (Reuters) - Soft commodities strengthened on Monday with a boost from the weaker U.S. dollar and a rebound in stock markets on new global plans to rescue the banking sector.

    A steady flow of consumer buying held raw sugar sharply higher all day while coffee, cocoa and white sugar futures eventually pared gains, as the dollar clawed upward to hover near the unchanged mark. Volume was thin.

    Global stocks soared in their biggest one-day advance in at least 20 years while oil prices jumped after European governments took bold steps to restore market confidence and avert a worldwide recession. [ID:nN13461758]

    Dealers said it was much too early to say whether a rebound in soft commodity prices from the steep losses of the last few weeks would be sustained and the outlook depended on the performance of broader financial markets.

    "It is the overall market and credit liquidity that needs to loosen up first before we can start making any rational analysis of our markets," said soft commodity trader Steve Jesse of Rabobank.

    "The squeeze on liquidity and credit is probably keeping people, who might normally wade into these markets in some style, away," he added.

    Raw sugar futures bounded higher in a relief surge.

    "It's well oversold along with the other commodities last Friday. There's probably some trade buying in there from people who feel these prices are pretty attractive. You also got some short-covering," a dealer for a major financial house said.

    Most of the trade are unsure if the bounce can be sustained, given the wild swings in values seen the past few weeks.

    March raw sugar futures on ICE <SBH9> surged 0.47 cent, or 4.2 percent, to close at 11.70 cents a lb. The contract traded as high as 15.85 cents in late August but fell sharply as global economic woes deepened.

    "Measures taken by finance officials around the globe have restored some confidence and kept sellers at bay," brokers Sucden said in a daily sugar market report.

    "How long this continues remains to be seen but considering the drubbing over the last couple of weeks there is room to the upside," the report said.

    December whites in London <LSUZ8> finished up $8.70, or 2.7 percent, at $335 a tonne.

    KNEE JERK REACTION

    "If the politicians had conjured up enough confidence to prevent a resumption of investor panic selling then sugar has every chance to stage a sharp rally," brokers Fortis said in a market report.

    Coffee futures also closed in positive territory after suffering recent losses.

    "It's a bit of a knee-jerk reaction but I don't think this is going to be the one that brings us back on side. I can still see some scope to the downside," one coffee dealer said.

    Arabica futures on ICE closed up 2.30 cents, or 2 percent, at $1.1765 per lb. The contract touched $1.0935 last week, the lowest level for the front position in 15 months.

    London's robusta market also climbed with January <LKDF9> finishing up $66, or 3.9 percent, at $1,755 a tonne.

    Cocoa futures were higher, dragged up by gains in other markets, with the firm sterling <GBP=> compared to the dollar giving the U.S. market an extra boost. December cocoa futures on ICE <CCZ8> settled up $33, or 1.5 percent, at $2,277 a tonne. The contract touched $2,205 a tonne on Friday, the lowest level for the front month since late January.

    March cocoa in London <LCCH9> finished little changed, up 2 pounds at 1,396 a tonne, with gains capped by the strength of sterling.

    Sterling extended early gains against the dollar after Britain's Treasury stepped up efforts to revive its ailing financial sector by injecting capital into the country's biggest banks.

Source : Reuters