Sugar and coffee diverge as fundamentals reassert themselves after Brazil election

LONDON, Oct 27 (Reuters) - Sugar prices rose on Tuesday while arabica coffee headed lower as fundamental factors reasserted themselves on two markets that fell sharply in the previous session after President Luiz Inacio Lula da Silva's surprise election win in Brazil.

Lula's win prompted a collapse in Brazil's real currency , a development that encourages Brazilian mills, farmers and exporters to sell dollar-priced sugar and coffee futures because it raises returns in local currency terms.

The currency in the world's top sugar and coffee grower has since steadied as the dust settles after the election.

Raw sugar futures on ICE , viewed as a global price benchmark, rose 0.8% to 19.27 cents per lb by 1201 GMT, having closed 5.6% down on Monday.

ICE arabica coffee futures , by contrast, fell 2.2% to $2.9440 per lb, extending Monday's 2.1% decline.

"Looking at sugar fundamentals, rain keeps costing (Brazil) crushing days and India enters its peak festive demand on thin stocks, with domestic prices climbing towards import parity. We therefore expect the market to rebound," said physical sugar broker Deepcore.

Arabica coffee's supply outlook, by contrast, continues to improve.

"Brazilian coffee weather remains wet but favourable, supporting flowering and early crop development while accelerating expectations for a potentially record crop," said independent broker Michael J Nugent.

He added that market fears over what the Lula victory might mean for Brazil's economy and currency were probably overblown in the immediate aftermath of the Lula victory.

"The conventional expectation of a sharp deterioration in US-Brazilian relations may prove too simplistic. Trump and Lula are both highly transactional, practical political operators who understand how to negotiate," he said.

Refined sugar rose 1.1% to $521 a metric ton, having closed 3.6% down on Monday.

Robusta coffee edged up 0.2% to $3,207 a ton, having lost 1.3% on Monday.

Robusta is under pressure overall as the harvest gets under way in top grower Vietnam and exchange stocks continue to rise.

London cocoa rose 0.8% to £4,301 a ton, having ​settled 1.1% down on Monday, while New York cocoa was up 1% at $5,546 after dropping by 1.8% on Monday.