MUMBAI, Jan 1: India sugar futures climbed on Thursday afternoon as bulk traders stocked up in anticipation of good spot demand, but higher supplies and tighter controls on exports limited the rise in prices.

Traders said the market was also underpinned by a drop in inflation, which would ease pressure on the government for measures to curb prices.

Sugar should find support from short covering after recent falls and on fresh buying at the beginning of the month when the retail demand is good, brokerage Karvy Comtrade Ltd said in a report.

Annual inflation fell to a near 10-month low in the third week of December, helped by lower prices of minerals and aviation fuel, and analysts saw more monetary easing after aggressive rate cuts in the last quarter of 2008. Sugar prices are ably supported by lower inflation.

We can now expect prices to rise from here on fundamentals of lower production forecast, said Raj Kishore Baruah, an analyst in Sushil Global Commodities Pvt Ltd.

Indian sugar output is forecast to fall to about 20 million tons in the year ending September from about 26.3 million tons produced a year ago, the farm minister said last week.

However, higher supplies in the March quarter and tighter regulation of exports may keep a check on any sharp rise in the prices, analysts said.

Total sugar availability during January to March is likely to be about 5 million tons against a total of 4.4 million tons in the same period last year, the government said on Monday.—Reuters