KUALA LUMPUR (August 05 2004): Malaysian crude palm oil futures rose onspeculative support on Wednesday, bucking initial expectations of a weakmarket.

But concerns over surging freight rates and difficulty in securing vesselsfor oil shipments could be a dampening factor in days ahead, dealers said.The benchmark palm oil contract on the Malaysia Derivatives Exchange,October, ended 11 ringgit up at 1,405 ringgit ($366.84) a tonne, off theday's high of 1,413.

Other traded contracts were up two to seven ringgit. But volume wasaverage, at 4,071 lots of 25 tonnes each. The market usually trades 6,000lots or more on a busy day.

"Most of today's business is speculative and looks like a stage for peopleto take profits later," said a trader. "But the fear over freight rates isreal."

Shipping costs for palm oil from Malaysia and Indonesia, the world'slargest exporters jumped 20 percent over the last two weeks as crude oiltouched 21-year peaks, freight brokers said.

Freight rates for Malaysian and Indonesian palm oil bound to destinationsin China, India, Pakistan, Rotterdam, Red Sea ports and the Mediterraneanwere quoted $2 to $5 a tonne higher this week from a week ago, the brokerstold Reuters.

India is the world's largest buyer of edible oils, followed by China.Purchases by the two major consumers dropped over the last two months asChina grappled with a credit squeeze while India was exhausting a bumpersupply of domestic oils from last year." Only in the last couple of weeks,we've seen the Indians and Chinese ready to buy again in big quantities,"said a palm oil exporter. "So, the crude oil rally could not have come ata worst time." Physical crude palm oil prices in Malaysia also reboundedon Wednesday on the strength of futures. Physical oil for August sawbuyers/sellers at 1,450/1,455 ringgit a tonne in Malaysia's southernregion, against on Tuesday's close of 1,435/1,440.

The same contract for the central region saw bids/offers at 1,445/1,450ringgit a tonne.

Trades for August were reported at 1,445-1,450 in the south and1,442.50-1,445 in the central zone. Physical oil for September was quotedat 1,425/1,435 in both the central and southern regions. No trade wasreported.

PALM OIL FUTURES:August (south): 1455.Open/High/Low: 1402/1413/1400.Previous closes: 1440.

PALM OIL PHYSICALS:October (3rd month): 1405.Previous settlement: 1394.

FUTURES:Benchmark third-month October up 11 ringgit at 1,405 ringgit ($369.74) atonne.

PHYSICALS:August offers up 15 ringgit a tonne.