* Palm reaches 2-week low in the evening at 2,541 rgt/t
* Speculation of higher output, technical selling depresses market -trader

(Updates latest prices)
19/05/2016 (Reuters) - Malaysian benchmark palm oil futures reversed gains to hit a two-week low on Wednesday, as speculation over higher output and technical selling dragged the market lower.


The new palm oil contract for August delivery on the Bursa Malaysia Derivatives Exchange fell 1.5 percent to 2,561 ringgit ($633) per tonne at the evening close. It earlier dipped to 2,541 ringgit, its lowest since May 4.

Traded volumes stood at 68,295 lots of 25 tonnes each at the end of the trading day, more than the 2015 daily average of 44,600.

"We're seeing a technical sell off, which only happens once the 2,600 ringgit range is broken and profit taking comes in," said a Kuala Lumpur-based trader.

"There could be speculation of better output on the back of massive rains in recent weeks, but rain is subjective to location."

Improving output would weigh down on palm's benchmark prices, which gained nearly 10 percent in the first quarter of the year on declining production from a crop-damaging El Nino.

The El Nino weather event causes scorching heat across Southeast Asia, lowering yields and impacting palm oil production in top producers Indonesia and Malaysia.

Gains in palm benchmark prices, which have risen 4.6 percent so far this year, could also be capped by slower demand growth in top consumers China and India.

Malaysian palm oil shipments for the first half of May grew 14-16 percent from a month ago, a slower growth rate versus the 22-32 percent export rise seen in the first 10 days of May.

In competing vegetable oils, the September soybean oil contract on the Dalian Commodity Exchange rose 0.5 percent, while the Chicago Board of Trade soyoil contract for August was down 0.4 percent.

Palm, soy and crude oil prices at 1030 GMT:

Contract Month Last Change Low High Volume

MY PALM OIL JUN6 2592 -41.00 2577 2646 288

MY PALM OIL JUL6 2587 -38.00 2563 2639 10288

MY PALM OIL AUG6 2564 -39.00 2541 2616 36441

CHINA PALM OLEIN SEP6 5174 -72.00 5120 5336 1369028

CHINA SOYOIL SEP6 6000 -34.00 5924 6148 1029326

CBOT SOY OIL JUL6 32.39 -8.90 32.29 33.05 8661

INDIA PALM OIL MAY6 539.00 -8.90 537.10 544.8 1834

INDIA SOYOIL MAY6 631.6 -5.55 630.9 635.3 3720

NYMEX CRUDE JUN6 48.44 +0.13 48.03 48.58 46643

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 = 4.0450 ringgit)
($1 = 66.9600 Indian rupees)
($1 = 6.5352 Chinese yuan)