* Raw sugar at lowest level since Aug 2010 in heavy trading
* Arabicas touch lowest level since June 2010
* Ivory Coast seen behind in cocoa forward sales (New throughout, adds quotes, updates closing prices; adds NEW YORK byline/dateline)
By Chris Prentice and Sarah McFarlane
NEW YORK/LONDON, Feb 14 (Reuters) - ICE raw sugar and arabica coffee futures fell to their weakest levels in more than two years on Thursday as both markets face surplus supplies that dealers expected to drive prices even lower.
Cocoa prices also declined.
Benchmark raw sugar prices on ICE Futures U.S. broke below a key technical level of 18 cents a lb for the first time since August 2010 and have now fallen by around 50 percent in the last two years as the global market struggles to absorb a third season of surplus supply.
March raw sugar futures settled down 0.29 cent, or 1.6 percent, at 17.94 cents a lb, after earlier falling as low of 17.87 cents.
Sugar has been the worst performing commodity so far this year on the S&P GSCI Index.
"With excess supply set to continue and demand likely to remain subdued, we expect the U.S. benchmark sugar price to finish 2013 at around 15 cents per pound," said Tom Pugh, analyst at Capital Economics, in a note.
The prolonged decline in prices is expected to force some of the least efficient beet growers, many of them in Eastern Europe, to switch out of sugar.
Trading volumes on ICE were on track to reach a five-month high with nearly 198,000 lots traded, according to preliminary Thomson Reuters data.
Hefty open interest of puts in March contract options, set to expire on Friday, at the 18-cent level caused prices to gravitate to that level, weighing on the market.
"If the market settles below 18 cents (on Friday), all of the puts (sells) are going to be exercised," said Nick Gentile, senior partner of commodity trading consultancy Atlantic Capital Advisors.
The March contract decline was less than that of May, with its premium at 0.17 cent, the largest premium the spot contract has held to the second-month since July.
May raw sugar, the most-active contract, closed down 0.43 cent, or 2.4 percent, at 17.77 cents a lb.
May white sugar on Liffe was down $5.10, or 1 percent, to close at $490.40 a tonne.
Arabica coffee futures on ICE also fell to the lowest level in more than two years on Thursday.
"There's plenty of coffee around, the roasters are well-covered. With no short-term tightness in coffee, the market can just keep falling lower," Atlantic's Gentile said.
May arabica coffee futures on ICE fell 0.85 cent, or 0.6 percent, to close at $1.4075 per lb. The contract hit $1.4010 earlier in the session, the lowest level for the benchmark second month since June 2010.
May robusta coffee futures on Liffe dropped $33, or 1.6 percent, to finish at $2,059 a tonne as dealers said the market remained supported by increased usage versus arabicas in coffee blends.
"In the last year or two, certain manufacturers and a lot of industry were switching their blends to being more robusta based, they're not going to change that at the moment," said a broker.
Cocoa prices closed down after seeing slight gains earlier, in anticipation of forward sales from West Africa.
May cocoa futures on ICE fell $14, or 0.6 percent, to settle at $2,156 a tonne, falling from earlier gains and not far above the $2,147 price touched on Tuesday, the lowest level for the second-month since June 2012.
Expectations that top producer Ivory Coast is behind in its 2013/14 forward sales limited any potential gains.
There's "higher risks for origin selling coming in at every price strength and capping upside in the short term. On the consumer side, industry is said to have more than eight months coverage, and accordingly is not willing to chase prices higher," Macquarie Bank said in a note.
May cocoa on Liffe slid 5 pounds, or 0.3 percent, to finish at 1,427 pounds per tonne. (Reporting by Chris Prentice; Editing by Marguerita Choy)