28/07/2012 (Reuters) - Malaysian crude palm oil bounced up on Friday from a five-week low hit the previous day after the European Central Bank pledged to protect the euro zone in comments that helped risk assets.

The broader financial markets rose after ECB President Mario Draghi said the bank would do whatever was necessary to protect the euro zone from collapse, raising expectations it will move quickly to tackle sky rocketing borrowing costs in countries such as Spain.

Benchmark October palm oil futures on the Bursa Malaysia Derivatives Exchange closed 1.6 percent higher at 2,927 ringgit ($926) per tonne. Prices had touched 2,880 ringgit on Thursday, the lowest level since June 18.

But palm oil still posted a 3.8 percent weekly loss, the worst performance since mid-June, as forecasts for rain in the U.S. Midwest relieved some fears of tightening global oilseed supplies.

Favourable weather for soybeans could lead to a higher supply of soybean oil and draw demand away from palm oil. 

"The selling was a bit overdone yesterday, so we see a little bit of recovering today," said a trader with a foreign commodities brokerage in Malaysia. "Optimism over Europe may not last for long as the sovereign debt issue remains unsolved." 

Traded volume stood at 32,356 lots of 25 tonnes each, higher than the usual 25,000 lots on short-covering activities ahead of the weekend.   

Market players are looking out for palm oil export data for July due next Tuesday for consumption trends after earlier numbers showed signs of slowing demand.

Malaysia's palm oil exports fell 14.3 percent and 18.6 percent over the July 1-25 period, according to cargo surveyors Intertek Testing Services and Societe Generale de Surveillance respectively. 

But slowing exports coupled with better production expected in Malaysia this month could boost palm oil stock levels and ease some pressure off tightening global oilseed supplies.

A tighter supply outlook on persistent drought in the U.S. Midwest has pushed soybean oil prices to record highs, fuelling worries of food inflation in top edible oil buyers India and China.

Shares of the world's largest palm oil firm Wilmar International Ltd fell as much as 6.4 percent to their lowest in more than 3 years on Friday, on market talk that China had asked edible oil suppliers to keep prices stable, traders said.  

Brent crude oil rose to around $106 per barrel on Friday, buoyed by the ECB's pledge to protect the euro zone and hopes for a fresh economic stimulus in the United States, raising palm oil's appeal to be used as a biofuel alternative.

Other vegetable oil markets also recovered after losses suffered the previous day.

By 1009 GMT, the most active U.S. soyoil contract for December delivery inched up 0.5 percent. The most active January 2013 soyoil contract on the Dalian Commodity Exchange closed 0.5 percent higher. 

  Palm, soy and crude oil prices at 1010 GMT

  Contract        Month    Last   Change     Low    High  Volume
  MY PALM OIL      AUG2    2906   +51.00    2881    2910     440
  MY PALM OIL      SEP2    2915   +46.00    2880    2920    1529
  MY PALM OIL      OCT2    2927   +45.00    2891    2930   18672
  CHINA PALM OLEIN JAN3    7768   +88.00    7650    7774  206634
  CHINA SOYOIL     JAN3    9402   +46.00    9320    9408  302764
  CBOT SOY OIL     DEC2   52.65    +0.25   52.30   52.78    7943

  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=3.16 Malaysian ringgit)