21/10/2011 (Reuters) - Malaysian palm oil futures dropped on Thursday as investors' avoided risky assets on concerns that a key European leaders' summit may not reach a consensus on the debt crisis in the region.

Losses, however, were limited as market players came back later in the session as the market was seen as oversold.

Palm oil prices have see-sawed for this week on conflicting reports over European governments reaching a deal to contain the crisis and recapitalise banks in the region.

Commodity markets came under pressure on fears of economic growth slowing after French President Nicholas Sarkozy said plans to resolve the crisis stalled with policymakers at odds over how to increase the bailout fund.

"Palm oil's fundamentals are slightly bullish but that has been stamped out by the greater macro bear called the euro zone," said a trader with a foreign commodities brokerage.

"Exports are still doing well but the question is what happens when the festival season ends and stocks continue to rise and we are left with the euro zone mess," the trader added.

Benchmark January palm oil futures FCPOc3 on the Bursa Malaysia Derivatives Exchange settled down 0.9 percent at 2,866 Malaysian ringgit ($923). The contract earlier fell to an intra-day low of 2,822 ringgit, coming close to a one-week low hit on Tuesday.

Traded volumes stood at 31 lots of 25 tonnes each, compared to the usual 12,500 lots as more market players returned to take up positions.

The palm oil market has been trading in a weak contango -- where the third month or the most active month is at a discount to later contracts -- due to expectations of production continuing to rise in the short term.

The market on Thursday came under pressure after cargo surveyor Intertek Testing Services reported Malaysian palm oil exports for the first 20 days of October rose 5.5 percent to 1.03 million tonnes from a month ago.

Another cargo surveyor Societe Generale de Surveillance said exports for the same period rose 6.8 percent.

"The market went up yesterday on the higher exports and it was expected but it is clearly not enough when production could be 10 percent higher," said another trader in Kuala Lumpur. 

October exports have largely been driven by higher crude palm oil shipments out of Malaysia after Indonesia kept export taxes on its cargoes virtually unchanged, triggering a shift.

But Malaysian crude palm oil has lost that discount to the Indonesian grade, potentially slowing down orders in the coming days.

U.S. soyoil for December delivery dropped 0.3 percent in Asian trade on seasonal harvest pressure and mounting concerns over the euro zone crisis stalling economic growth and commodity demand.

China's most active May 2012 soybean oil contract and RBD palm olein both fell more than 2 percent. 

  Palm, soy and crude oil prices at 1016 GMT
                                                                   
  Contract                       Month    Last   Change     Low    High  Volume
  MY PALM OIL               NOV1    2873    -7.00    2822    2877     497
  MY PALM OIL               DEC1    2866   -20.00    2821    2883    4706
  MY PALM OIL               JAN2    2866   -26.00    2822    2880   16489
  CHINA PALM OLEIN  MAY2    7736  -206.00    7636    7768  190124
  CHINA SOYOIL           MAY2    9066  -210.00    8962    9096  668832
  CBOT SOY OIL           DEC1   51.33    -0.15   50.94   51.57   11574
  NYMEX CRUDE          NOV1   86.50    +0.39   85.27   86.94    2011
                                                                   
  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 = 3.105 Ringgit)