29/09/2012 (Reuters) - Malaysian palm oil futures dropped to a two-year low on Friday, and posted their worst weekly performance so far this year, as bearish investors were discouraged by the rapidly progressing soybean harvest in the United States.

Palm oil is used as a substitute for soybean oil, and U.S. soybean futures have lost more than 9 percent since the beginning of last week, their biggest two-week slide in a year, due to the harvest data and reports that yields were not as badly hit by drought as expected.

"It's the end of the week, and market dropped heavily. We see further liquidation," said a trader with a foreign commodities brokerage in Malaysia. "Both technicals and fundamentals are bearish. Everything looks bad."

Palm oil futures fell as far as 2,534 ringgit ($830) per tonne, the lowest since September 2010, and have lost almost 8 percent this week. For the quarter, prices recorded their steepest loss since the final quarter of 2008.

The benchmark December contract on the Bursa Malaysia Derivatives Exchange lost 2.3 percent to close at 2,546 ringgit per tonne.

Prices fell even though analysts expect the U.S. Department of Agriculture (USDA) quarterly report, due to be released on will show soybean stocks as of Sept. 1 at an eight-year low.

Total traded volumes stood at 36,951 lots of 25 tonnes each, much higher than the usual 25,000 lots.

Palm oil prices have lost close to 16 percent this month, their worst performance since October 2008.

"The palm oil price is usually weak in September, possibly since production peaks during the month, during which there may potentially be high inventory," Malaysia's OSK Investment Bank said in a research note.

Traders have been pricing in a build in stocks in No.2 producer Malaysia in September that could push inventories above a 10-month high hit in August, with exports not climbing enough to offset high production.

Cargo surveyors Intertek Testing and Societe Generale de Surveillance reported 8 and 11 percent increases respectively in exports for Sept. 1-25 and will issue exports data for the full month on Monday.    

In a bullish sign for palm oil, oil prices were firmer above $113 on Friday as plans for economic reform in Spain temporarily eased investor concerns about Europe's debt crisis, while heightened tensions between Israel and Iran also provided support.

In other vegetable oil markets, U.S. soyoil for December delivery lost 1.4 percent in late Asian trade.

The most active January 2013 soyoil contract on the Dalian Commodity Exchange closed 0.1 percent higher on the last trading session before a week-long holiday.    

  Palm, soy and crude oil prices at 1011 GMT

  Contract        Month    Last   Change     Low    High  Volume
  MY PALM OIL      OCT2    2420   -60.00    2390    2480     512
  MY PALM OIL      NOV2    2461   -84.00    2461    2564    2158
  MY PALM OIL      DEC2    2546   -61.00    2534    2634   19221
  CHINA PALM OLEIN JAN3    7186   +10.00    7172    7244  220106
  CHINA SOYOIL     JAN3    9278    +6.00    9250    9328  305268
  CBOT SOY OIL     DEC2   51.83    -0.75   51.69   52.84   13436
  NYMEX CRUDE      NOV2   92.26    +0.41   92.06   92.71   17935

  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 = 3.056 ringgit)