India sugar down as mills sell ahead of Sept. 10 deadline

MUMBAI, Sept 7 (Reuters) - Indian sugar futures extended losses for a third session on Friday as mills sought to sell their government-set quotas by a Monday deadline, with some expectations prices could recover after that.

However, a recent improvement in rains in key growing areas could keep sentiment subdued.

* "Sugar producing regions of Maharashtra received good rains. It could support standing crop in the state and may prevent a steep decline in the output," said Vedika Narvekar, a senior analyst with Angel Commodities Broking Pvt Ltd.

* Rains in western Maharashtra, the key sugar producing region, were 83 percent above average in the week ended Sept. 5, and that eased concerns of a steep decline in sugar output due to drought and diversion of the crop for fodder.

* The state has been facing an acute shortage of green fodder due to drought, which prompted farmers to sell mature cane for animal feed.

* Once the government-set quotas, known as "non-levy" sugar, are exhausted by mills, there could be some recovery in sugar prices due to the approaching festival season, said Pradeep Bhanushaali, a dealer at Vashi spot market near Mumbai.

* Indians celebrate a host of festivals from September to November, and demand for sweets surges during this period.

* The Indian government has provided an additional 10 days to sugar mills to sell around 200,000 tonnes of unsold non-levy sugar stocks of August by Sept. 10.

* India's monsoon has splashed back into life, lifting the threat of prolonged drought in the major rice and sugar producer with a second consecutive week of heavier-than-normal rains that could revive yields.

* The key October contract on the National Commodity & Derivatives Exchange closed down 1.04 percent at 3,531 rupees per 100 kg.

* In the Kolhapur spot market in top producing Maharashtra state, sugar fell 34 rupees to 3,471 rupees per 100 kg. (Reporting by Deepak Sharma; Editing by Anand Basu)