Sugar hit its highest level in nearly six months in New York, and closed strongly in London, on fresh setbacks to crops in major producing states, and amid growing anticipation of fund buying in the wings.

New York raw sugar for October delivery hit 20.94 cents a pound, the highest for a spot contract since early March, before losing some ground to stand at 20.67 cents a pound in late deals, up 0.9% on the day.

In London, white sugar for October ended 2.0% higher at $592.20 a tonne.

The increases followed a 550,000 downgrade, to 38.15m tonnes, in the estimate by Brazil's official crop bureau, Conab, for sugar output in the top producing country in 2010-11.

Separately, tests on the French beet crop, the European Union's biggest, revealed sugar content of 15.8%, down 1 percentage point on a test two weeks before, and down from an early-August reading of 17%.

At Barclays Capital, Sudakshina Unnikrishnan flagged similar tests in drought-beset Russia, a significant sugar importer, which showed levels of the sweetener in beet at 16.6%, 1 point higher than last year,  but revealed beet root weights one-third lower at 292 grammes.

"That gave support to prices," she told Agrimoney.com.

'Only the beginnings' 

However, such rises may be swamped by gains to come if they lure back the funds which helped send prices to a 29-year-high of 30.4 cents pound in February, Nick Penney at Sucden Financial said.

"With new recent highs being posted in the futures markets, it may not be too long before the main fund players who participated last year and early this year return to the fray," he said.

"Should they be convinced by the latest 'sugar story' it is likely that we have only seen the beginnings of a rally."

The gap between the near-term October contract and the second-in March lot might also affect price dynamics, if producers prove reluctant to sell, and carry the cost of hedges for potentially a prolonged period.

"Should [producers'] be reluctant to hedge, the potential new fund buying may come in a vacuum, causing increased volatility and higher prices," Mr Penney said.