05/12/2012 (Reuters) - Malaysian palm oil futures fell to its lowest in more than three weeks on Tuesday as investors fret over the prospects of another  month of record stocks in the world's No.2 producer.

Spot December contract was trading at a 8 percent discount to the benchmark February futures, signalling oversupply and keeping investors on edge although seasonally slowing output and Chinese demand should curb stockpiles.

Record high stocks in Indonesia and Malaysia will see palm oil futures post their worst annual performance since the financial crisis in 2008. Palm oil prices have lost nearly 28 percent so far this year also on the deepening euro zone debt crisis affecting global economic growth.

"There is plentiful stock around -- that's the reason why the market is still technically weak. The local front is bearish," said a trader with a foreign commodities brokerage.

"Exports are holding quite well, the demand is still strong. But unless you see a draw down in inventory, the market will be under pressure," he added.

The benchmark February contract on the Bursa Malaysia Derivatives Exchange fell as much as 2,279 ringgit per tonne, the lowest since Nov. 12, before closing at 2,298 ringgit ($756) per tonne.

Total traded volumes surged to 42,981 lots of 25 tonnes each, nearly doubling from the usual 25,000 lots.  

Technicals showed that palm oil would revisit its Nov. 12 low of 2,220 ringgit per tonne, said Reuters market analyst Wang Tao.

Malaysian crude palm oil exports are expected to rise in the next few weeks thanks to stronger demand from China ahead of Lunar New Year celebrations in February, and stricter import rules next year.

"We have assumed crude palm oil exports to increase by 5 percent to 1.85 million tonnes in November as Chinese traders are expected to stock up," Kenanga Investment Bank analyst Alan Lim said in a note to clients.

Kenanga expects inventory levels to "remain close to the very high level of 2.5 million tonnes" and keep crude palm oil prices below 2,500 ringgit in the near term.

Weak manufacturing data from the United States renewed concerns of slowing demand from the world's biggest oil consumer, offsetting optimistic factory data issued by China a day earlier.

Brent crude oil slipped towards $110 a barrel on Tuesday as weak manufacturing data and protracted U.S. budget negotiations fanned concerns about the health of the global economy and the prospects for energy demand.

In palm oil's competing markets, U.S. soyoil for December delivery edged up 0.2 percent. The most active May 2013 soybean oil contract on the Dalian Commodity Exchange rose 0.1 percent.

  Palm, soy and crude oil prices at 1012 GMT

  Contract        Month    Last   Change     Low    High  Volume
  MY PALM OIL      DEC2    2110    +9.00    2100    2125      60
  MY PALM OIL      JAN3    2220   -17.00    2202    2241    3665
  MY PALM OIL      FEB3    2298   -18.00    2279    2319   17376
  CHINA PALM OLEIN MAY3    6796   -32.00    6728    6800  645198
  CHINA SOYOIL     MAY3    8676   +12.00    8612    8678  469212
  CBOT SOY OIL     JAN3   50.25    +0.04   50.05   50.47    6574
  NYMEX CRUDE      JAN3   89.04    -0.05   88.52   89.16   14617

  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=3.043 ringgit)