Sugar rises as government gives interest-free loans to mills

MUMBAI (Reuters) - Sugar futures edged higher on Friday on bargain-buying, driven by hopes the government's decision to provide interest-free loans to sugar mills will limit distress sale in the market.

Ample stocks and a pick-up in cane crushing capped the upside.

The cabinet has approved a scheme of interest free loans to sugar mills, Food Minister K.V. Thomas said on Thursday, as part of a bail-out package to beleaguered mills.

"Some mills are making distress sale in the market as they need money to make cane payments. The government assistance can reduce distress sale," said Ashok Jain, president of the Bombay Sugar Merchants Association.

At 0959 GMT, the key January contract on the National Commodity and Derivatives Exchange was up 0.33 percent at 2,769 rupees per 100 kg. It hit a low of 2,746 rupees on December 12, the lowest level in more than two years.

Mills have been swamped with massive stocks, as India is set to produce surplus sugar for the fourth year in a row.

In overseas markets, raw sugar futures were trading up 1.73 percent after rising 1.6 percent in the previous session as low prices drove buying.

Spot sugar was up 3 rupees at 2,871 rupees per 100 kg at the Kolhapur market in Maharashtra.

India started the new sugar marketing year on October 1 with carry-forward stocks of 8.8 million tonnes. It is expected to produce 25 million tonnes this year against a demand of 23 million tonnes.

Demand from bulk buyers, who account for nearly 65 percent of the total demand, continues to be subdued due to winter season. (Reporting by Rajendra Jadhav; Editing by Anand Basu)