Sugar investors should beware of placing too much hope in the rally which, even after a modest setback on Wednesday, left prices 6% above May's low, analysts have said.

The unrest in Thailand, where many anti-government protestors surrendered on Wednesday, "could bring further uncertainty" to the sugar market, Commerzbank said.

But the travails of the world's second largest sugar exporter come at when world supplies are recovering from the tightness which drove prices to a 29-year high in February.

Brazil, the top producer, is reporting a jump in production, while cane planting in second-ranked India has risen by 7.5%, returning the world market to a production surplus, which the International Sugar Organisation has pegged at 2.5mktonnes for 2010-11.

"The fundamental factors do not suggest any major price rallies are on their way," Commerzbank said.

'Hard to believe' 

The comments were echoed by Thomas Kujawa at Sucden Financial Sugar who said that, while Thai white sugar premiums have rallied a little in response to the unrest, the potential impact on the world market "remains unclear".

"It seems hard to believe with the big Brazil crop and good [Indian] monsoon on the way, the value funds, trade and so on would want to be long above 15 cents a pound, especially with this nervous euro situation in the mix," Mr Kujawa said.

The euro earlier fell to a four-year low of $1.2143 against the dollar, depressed by the German ban on some short selling, which spooked many markets including shares, which lost more than 2% on Frankurt, London and Paris exchanges.

In sugar, it was "impossible to imagine an overnight ban on short selling and the panic it would cause. Truly unnerving", Mr Kujawa added.

New York raw sugar for July delivery stood 1.6% lower at 14.56 cents a pound at 11:00 GMT, with London white sugar for August easing 0.5% to $478.50 a tonne.