* Vietnam coffee prices at eight-month low
   * Trade at standstill as farmers hold back
   * Drought may strike in March, April -report
(Updates with drought risk)
   By Ho Binh Minh
   HANOI, Feb 23 (Reuters) - Domestic coffee prices in Vietnam fell to an eight-month low in static trade that could cut March and April shipments by the world's second largest producer which also faces drought risk in a key growing region, traders said on Tuesday. 
  

 The slow trade after the week-long Tet holiday to mark the Lunar New Year follows widespread delays earlier this month. [ID:nHAN178814]
   Robusta beans dropped to 22,500-22,700 dong ($1.2) per kg in the top coffee-growing province of Daklak, a level last seen in late June 2009, and farmers were refusing to sell, traders said.
   The beans stood at 23,150-23,500 dong per kg on Feb. 9.
   The London May robusta contract <LRCK0> touched $1,256 a tonne on Monday, an eight-month low for a benchmark second month contract.
   "Lower prices have prompted farmers and exporters to hold back," a trader with a foreign company in Ho Chi Minh City said.
   "We are not seeking new deals now, but focus on clearing shipping papers, which was disrupted by Tet," he said.
   Following the drop in London prices, export prices for Vietnamese robusta grade 2, 5 percent black and broken, fell to $1,230-$1,250 a tonne on Tuesday for spot shipment, free-on-board basis, from $1,310-$1,320 in the week ending Feb. 12. <COFFEE/ASIA1>.
   That compares with a range of $1,245-$1,360 a tonne quoted between June 22-29, 2009.
   "Vietnamese exporters should have sold when prices were at $1,400 a tonne," said another trader in Ho Chi Minh City, Vietnam's biggest coffee trading market. "With prices falling like now, it's tough to buy anything out of here," he said.
   
   DROUGHT LOOMS
   Coffee prices are falling at a time when farmers need cash to buy fertiliser and fuel for watering during the six-month dry season due to end in early May. The harvest for the 2010/2011 crop will start in October.
   The Central Highlands coffee belt could face a severe drought in March and April as water levels in rivers and lakes have dropped, causing water shortages for thousands of families, the region's weather bureau said in a report on Monday.
   It did not give any specific forecasts for the coffee crop and traders said it was too early to assess the impact of any drought.
   A trader who toured the region early this month said production was smooth, with white robusta flowers now blanketing farms in the Central Highlands. The region produces 80 percent of Vietnam's total output.
   "So far we have not seen any drought impact on trees," the second trader in Ho Chi Minh City said.
   State media said rain fell unexpectedly on Monday in the central province of Kontum, helping coffee farmers save on watering costs and reducing the risk of forest fire in the region. ($1=18,900 dong)
 (Editing by Ed Lane) (( This e-mail address is being protected from spam bots, you need JavaScript enabled to view it ; +844 3825 9623; Reuters