* Palm sees sharpest decline in 5 months
* Market drops tracking falling rival oils in China -trader
* Market could recover on weaker ringgit, weekend covering in afternoon -trader

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13/05/2016 (Reuters) - Malaysian palm oil futures fell the most in five months on Friday morning, tracking a sharp drop in rival vegetable oils on China's Dalian Commodity Exchange.

The palm oil contract for July delivery on the Bursa Malaysia Derivatives Exchange was 2.2 percent lower at 2,589 ringgit ($642) per tonne at the midday break.

There were 27,604 lots of 25 tonnes each traded by the break.

While this is the market's sharpest drop since it fell 3 percent on Dec. 15, palm is still on track to gain 0.8 percent this week.

"The market slid on Dalian's RBD (refined, bleached and deodorised) palm olein. Most of the commodity prices are down sharply in China, so our market tagged along with that," said a trader from Kuala Lumpur.

"However, we see the ringgit weakening at 4.03 per dollar, so palm might recover in the afternoon due to that."

A weaker Malaysian ringgit - the currency palm oil is traded in - makes the vegetable oil cheaper for foreign currency holders and can spur purchases. The ringgit fell 0.3 percent against the dollar on Friday morning.

Another trader added that palm oil is likely to see some weekend covering after the Dalian Commodity Exchange closes.

Malaysian palm oil futures have tracked the decline in China's rival vegetable oils.

China's Dalian Commodity Exchange said on Thursday it will restore full transaction fees on soybean meal, corn starch, palm oil, and soybean oil futures positions that are opened and closed on the same day, among other measures to curb speculative trading behind strong rallies last month.

The most actively traded September contract for palm olein on the Dalian Commodity exchange declined 4 percent on Friday morning, while the September soybean oil contract on the Dalian Commodity Exchange also fell 4 percent.

The Chicago Board of Trade soyoil contract for July saw a 1.1 percent decline.

The offer price for crude palm kernel oil stood around 4,844.64 ringgit per tonne <PKO-MYSTH-M1> at noon, according to price assessments by Thomson Reuters.

Palm, soy and crude oil prices at 0500 GMT:
Contract Month Last Change Low High Volume
MY PALM OIL MAY6 2635 -40.00 2635 2650 29
MY PALM OIL JUN6 2604 -56.00 2589 2610 579
MY PALM OIL JUL6 2589 -59.00 2578 2600 12853
CHINA PALM SEP6 5214 -216.00 5214 5392 1069680
OLEIN
CHINA SOYOIL SEP6 6044 -250.00 6044 6260 1036378
CBOT SOY OIL JUL6 32.22 -5.40 32.18 32.67 5012
INDIA PALM OIL MAY6 541.70 -5.40 540.60 544.6 427
INDIA SOYOIL MAY6 636.7 -5.70 636.1 640 540
NYMEX CRUDE JUN6 46.37 -0.33 46.06 46.47 22632

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
India soy oil in Indian rupee per 10 kg
Crude in U.S. dollars per barrel

($1 = 4.0300 ringgit)
($1 = 66.7665 Indian rupees)
($1 = 6.5225 Chinese yuan)