MUMBAI, July 2 (Reuters) - India sugar futures were trading higher in afternoon session on Monday on an improvement in demand and as the government kept non-levy quota for the September unchanged, though higher supplies restricted the gains.
* India has allowed millers to sell 4.5 million tonnes of sugar from July to September in the open market, unchanged from the previous quarter, according to a government statement on Friday.
* Non-levy, or free sale sugar, is sold by millers in the open market, but the quantity each mill can sell is fixed by the federal government.
* "There is some improvement in demand, and traders are hoping for further rise in demand in coming months and sugar prices in overseas markets have also risen," said Vedika Narvekar, senior analyst with Angel Commodities.
* At 0838 GMT, The key July sugar contract on the National Commodity and Derivatives Exchange was 0.90 percent higher at 2,918 rupees ($52.26) per 100 kg.
* Sugar rose 9 rupees to 2,908 rupees in the key spot market in Kolhapur, in top producing Maharashtra state.
* New York raw sugar futures rose with the nearby premium SB-1=R edging up to 0.80 cent ahead of expiry of the July contract on Friday.
* Annual demand in the world's top sugar consumer is estimated at about 22 million tonnes, against an expected output of 26 million tonnes in 2011/12. The country produced 25.5 million tonnes of sugar between Oct. 1 and May. 31, up 8 percent from last year. ($1 = 55.8350 Indian rupees) (Reporting by Deepak Sharma; Editing by Sunil Nair)