15/12/2011 (Reuters) - Malaysian crude palm oil futures tumbled to a six-week low on Thursday, with a global commodities sell-off stretching from the previous day over concerns the European debt crisis was spiralling out of control.

The global economic outlook has darkened after Italy was forced to pay a record borrowing cost on five-year bonds, reinforcing the view that the European summit last week failed to provide solutions to the two-year debt crisis.

Adding to the gloom was the shrinking in China's factory output again in December, strengthening expectations that waning global demand and tight credit conditions were starting to bite.

The debt crisis and signs of ample edible oil supply will help drive palm oil to its first yearly decline since the 2008 financial crisis. It has lost 20 percent so far this year. 

The decline in palm oil markets was more pronounced, thanks to a fall in Malaysian exports in the first half of December and a speculative mini-rally the day before, driven by concerns of monsoon rains disrupting harvests. 

"There was no reason for the market to go up yesterday, so it is giving back what shouldn't happened in the first place," said a trader with a commodities firm in Malaysia. 

"The external scenario has always been bad. So any sudden upward swing (in palm oil) will be an opportunity to sell." 

At the close, benchmark February palm oil futures on the Bursa Malaysia Derivatives Exchange dropped 2.7 percent to 2,972 Malaysian ringgit ($930) after going as low as 2,971 ringgit. 

Traded volumes for the February palm contract were at a three-week high at 16,017 lots of 25 tonnes each, compared with 13,556 lots on Wednesday. 

"It is all worry," said a Jakarta-based trader on the euro zone debt problems. "It should be priced in by now, but funds think a different way. Crude oil down also contributes." 

Cargo surveyor Intertek Testing Services reported a drop of 16.6 percent to 668,385 tonnes in Dec. 1-15 Malaysian palm oil exports from the same period a month ago as top buyer India slowed purchases.  

Rival cargo surveyor Societe Generale de Surveillance said exports of Malaysian palm oil products for Dec 1-15 fell 19.2 percent. 

But strong demand from China and Europe, as seen in ITS export data, suggests orders have not quite slowed and the trend is normalising from more than a two-year high of 1.68 million tonnes notched in October. 

The slowdown in exports may limit the declines in December end-stocks in Malaysia, the No.2 producer, where traders and planters expect heavy rains to limit harvesting and cut production 15 percent. 

Malaysia's weather office put out a heavy rain advisory for the key oil palm growing states of Pahang and Johor, warning that heavy rains over the coming weekend could cause floods in low-lying areas. Both states account for 25 percent of national output. 

U.S. soyoil for Jan 2012 delivery rose 0.4 percent in Asian trade with support coming from forecasts of dry weather from South America that dominates the soy markets next year.

China's most active Sept 2012 soybean oil contract dropped to a two-week low.     

Palm, soy and crude oil prices at 1017 GMT
                                                                                                        
  Contract                     Month    Last    Change   Low    High      Volume
  M'ASIA PALM OIL      DEC1       0         +0.00    3000       0             0
  M'ASIA PALM OIL        JAN2    2972   -76.00    2972    3025    1229
  M'ASIA PALM OIL        FEB2    2971   -81.00    2971    3028   16016
  M'ASIA PALM OIL       MAR2    2971   -82.00    2971    3026    8199
  DALIAN SOY OIL        SEP2    8718   -24.00    8626    8742   365818
  CBOT SOY OIL            JAN2   48.45    +0.05    48.37   48.80    6207
  NYMEX CRUDE          JAN2   95.48    +0.53    94.71   95.94   18274
                                                                                                        
  Palm oil prices in Malaysian ringgit per tonne
  CBOT soy oil in U.S. cents per pound
  Dalian soy oil in Chinese yuan per tonne
  Crude in U.S. dollars per barrel
  ($1=3.1835 Malaysian ringgit)