But the Touch Ambassador points to a story from last month's Nature magazine about how Mexican spider monkeys use hugging as a way to defuse intra-clan tension. (I think she is part of the Cuddle Party crew in the UK.)
From the article,
The small gangs bumps into one another frequently. If the other monkeys are seen as rivals, there is a danger that fighting will erupt. Hugging seems to be a way to ease the tension — aggressive encounters such as chases are more likely to happen among monkeys that do not embrace first.
This hugging presumably releases oxytocin, which calms the amygdala. The amygdala is a control center for the fight-or-flight reflexes; it sometimes causes animals (including the human variety) to lash out before the prefrontal cortex can make a judgment about whether aggression is called for.
Oxytocin also is involved in social memory -- recognizing who is a friend or member of the social group. So this hugging likely reinforces the "friend" relationship between huggers.
By the way, I went to a Cuddle Party in the San Francisco Bay Area, and thoroughly enjoyed it. I think they're dying out in the U.S., but here's my report: How I Cuddled