* Arabica drops 7.1 pct in 2 sessions
* March Liffe cocoa expiry sees 37,350 tonnes tendered
* Sugar back on defensive after Brazil-driven rally (New throughout, updates closing prices; adds trade comment, second byline, NEW YORK dateline)
By Marcy Nicholson and Nigel Hunt
NEW YORK/LONDON, March 17 (Reuters) - Arabica coffee futures on ICE dropped for the second straight day on Monday, its biggest two-day tumble in 2-1/2 years, as a forecast for widespread rain in top grower Brazil’s coffee belt took out some of the market’s weather premium.
Cocoa on ICE Futures U.S. and Liffe climbed to 2-1/2-year highs in thin dealings, on support from rising demand combined with the prospect of a second consecutive global deficit in 2013/14. Raw sugar futures fell to a three-week low.
May arabica coffee futures on ICE settled down 7.00 cents, or 3.5 percent, at $1.9140 per lb, after earlier dipping to a low of $1.8880. The contract has dropped 7.1 percent in the past two sessions, the biggest two-day drop since September 2011.
Brazilian meteorologist Somar said only light rain is expected in coffee areas this week, but widespread rain should reach coffee areas between March 22-26.
Crop damage is widely expected in Brazil’s biggest arabica growing region Minas Gerais, after a drought was followed by below average rain during the critical period when the beans are developing on trees. This pushed the futures market up 80 percent in less than seven weeks to a two-year high at $2.0975 last week, their biggest such rally in nearly 20 years.
“This precipitation will provide little to no benefit to the 2014 harvest although they may help with situation for the new crop,” said Sterling Smith, futures specialist for Citigroup in Chicago.
Romain Lathiere, head of dealing at Diapason Commodities Management, said the arabica market needed to retrace to some extent with the price outlook likely to remain uncertain until there is more clarity about the prospects for Brazil’s crop, possibly next month.
“The retracement we saw on Friday and again today looks to me more like profit-taking than anything else,” he said.
Dealers said rains in key growing regions this month helped to stall the rally.
“If there should turn out to be sufficient rain to prevent further crop shortfalls, the rally is likely to come to an end,” Commerzbank said in a market note.
The biggest arabica coffee rally in two decades is beginning to force smaller-brand roasters to raise wholesale prices, even as top names such as Starbucks resist.
May robusta coffee futures on Liffe followed arabica lower, finishing down $16, or 0.7 percent, at $2,159 a tonne. The second position peaked at $2,218 on Wednesday, a 17-month high.
Cocoa futures on ICE were higher with May closing up $38, or 1.3 percent, at $3,030 after setting a 2-1/2-year high of $3,039. Total volume was light around 15,000 lots, down 30 percent from the 250-day average, preliminary Thomson Reuters data showed.
Kash Kamal, research analyst with Sucden Financial said the market may now test resistance around $3,040.
“Moves above this levels may be limited however, as profit taking on any approach towards $3,030-40 limits upside potential,” Kamal said in a market update.
May cocoa on Liffe ended up 19 pounds, or 1 percent, at 1,893 pounds a tonne, after touching the highest since September 2011 at 1,895.
Dealers noted there was a modest delivery of 37,350 tonnes against the March Liffe contract that expired on Friday.
Raw sugar futures also fell with the market on the defensive following a rally linked to concerns that dry weather in Brazil could also curb production of the sweetener, which lifted the market to a four-month high early in March. The market’s focus has returned to excess supplies.
May raw sugar futures on ICE closed down 0.20 cent, or 1.2 percent, at 17.05 cents a lb, the lowest since Feb. 28.
“Prices now appear set to follow their typical seasonal sell-off in March, April and May,” analyst Luke Mathews of Commonwealth Bank of Australia said.
Liffe May white sugar futures ended down $3.60, or 0.8 percent, at $453.50 per tonne. (Editing by Jason Neely and Chizu Nomiyama)