U.S. Markets open in 3 hrs 29 mins

VEGOILS-Palm oil surges to near 2-mth high as output seen falling

* Prices jump to Aug. 28 high of 2,485 rgt in late trade

* Palm rises on news of dropping production-trader

* Palm oil may retrace to 2,406 ringgit-technicals

By Anuradha Raghu

KUALA LUMPUR, Oct 23 (Reuters) - Malaysian palm oil futures

rose to their highest level in nearly two months on Wednesday,

recovering from the morning session losses, as investors banked

on estimates that output had started to seasonally slow in the

world's second-largest grower.

Production traditionally rises in the second half of the

year and peaks only in October, before slowing down towards the

end of the year as palm oil trees rest and monsoon rains

complicate harvesting.

But a group of planters on Tuesday estimated output fell by

10.5 percent in the first 20 days of October, fuelling

expectations that end-stocks would stay below the two million

tonne mark this year despite earlier bearish forecasts warning

of surging stocks and production.

Soyoil markets in the United States and China, typically

tracked by palm, also gained momentum in late trade, supporting

prices of the tropical oil.

The U.S. soyoil contract for December rose 0.4

percent in late Asian trade, while the most-active January

soybean oil contract on the Dalian Commodities Exchange

rose 0.2 percent.

"The news about dropping production in October is the

reason," said a trader with a local commodities brokerage in

Kuala Lumpur.

The benchmark January contract on the Bursa

Malaysia Derivatives Exchange rose to 2,485 ringgit in late

trade, the highest since Aug. 28, before settling at 2,482

ringgit ($785) by Wednesday's close, a 1.1 percent climb.

That brought prices up 1.8 percent so far this year, their

first yearly rise since 2010.

Total traded volume stood at 32,615 lots of 25 tonnes each,

slightly lower than the usual 35,000 lots.

The Malaysian ringgit earlier rose as much as 0.76

percent early Wednesday, curbing buying interest, but then eased

to 3.1650 in late trade as investors including macro funds took

profits amid jitters ahead of the 2014 budget due on Friday.

Exports of palm oil traditionally slows in the last quarter

of the year, traders say, as cold winter temperatures solidifies

the tropical oil and makes it less appealing to buyers such as

China, the world's second-largest importer.

But festive demand ahead of a major Chinese celebration at

end-January might keep exports up and eat into stocks.

"Normally towards winter demand will slow down. But during

winter is also when China might buy a lot ahead of the Lunar New

Year festival," said one trader.

But palm was pressured by falling crude oil prices, as it

shifts demand away from crude palm oil as an alternate biodiesel


Brent crude slipped towards $109 a barrel on Wednesday on

rising inventories in China and expectations of a further

buildup in the United States, the world's top consumer.

Technicals were slightly bearish. Malaysian palm oil still

faces resistance at 2,449 ringgit per tonne, and may retrace to

2,406 ringgit, Reuters market analyst Wang Tao said.

Palm, soy and crude oil prices at 1045 GMT

Contract Month Last Change Low High Volume

MY PALM OIL NOV3 2488 +31.00 2440 2488 402

MY PALM OIL DEC3 2484 +24.00 2439 2484 6351

MY PALM OIL JAN4 2482 +27.00 2436 2485 15530

CHINA PALM OLEIN MAY4 6178 +56.00 6110 6204 973574

CHINA SOYOIL MAY4 7216 +14.00 7152 7236 782212

CBOT SOY OIL DEC3 41.67 +0.15 41.25 41.75 5412

NYMEX CRUDE DEC3 96.75 -1.55 96.74 98.29 34212

Palm oil prices in Malaysian ringgit per tonne

CBOT soy oil in U.S. cents per pound

Dalian soy oil and RBD palm olein in Chinese yuan per tonne

Crude in U.S. dollars per barrel

($1=3.166 Malaysian ringgit)

(Editing by James Jukwey)