Fonterra's Global Dairy Trade-Trade Weighted Index, which covers a range of 30 products and contract periods, rose 3.1 percent, with an average selling price of $3,756 per tonne. This followed a 2.4 percent rise at the previous sale.

It was the fourth consecutive sale in which prices have risen, and the biggest increase since September last year.

The latest auction was led by a 5.8 percent rise for whole milk powder, with 4 percent gains for anhydrous milk fat and butter milk powder.

Full details of the auction are at www.globaldairytrade.info

Dairy prices, which peaked in October 2007, have gained more than 30 percent since mid-May, in part because a drought in the United States has dented supply.

Fonterra holds two auctions a month, with results from the next one due on March 5.

On Tuesday Fonterra said none of its products had been destroyed in China as it sought to allay concerns fuelled by reports that spoiled milk powder imports from New Zealand had been culled there.

Last month, Fonterra rushed to reassure global customers of the safety of its milk products after traces of a potentially toxic substance were found in some products.

In December, the co-operative, owned by around 10,500 farmers, raised its forecast payout for the current season by around 4 percent to NZ$5.90-NZ$6.00 because of an improved price outlook.

Fonterra has recently set up a Shareholders Fund, a unit trust based on dividends from Fonterra shares, aimed at bolstering its balance sheet so it can fund expansion plans.