26/01/2012 (Reuters) - Malaysian crude palm oil futures edged up in post-holiday trade on Wednesday as traders focused on dry south American weather affecting soy yields, although concerns of a looming Greek debt default curbed gains.

Investors shifted their focus to the U.S. Federal Reserve that is expected to keep interest rates at ultra-low levels at the end of a two-day meeting on Wednesday, potentially weakening the U.S. dollar.

That has strengthened the ringgit currency used to price palm oil feedstock, making the commodity expensive for refiners.

But strong demand in the cash market after the Lunar New Year holidays supported the futures market which has made little headway so far this year, traders said.

"The euro zone debt crisis casts a shadow on everything, but things are a bit peachy on the first day back after Chinese New Year," said a trader with a foreign commodities brokerage in Kuala Lumpur.

"Demand is still there, there are the soy crop scares in south America. Even in Malaysia, people are keeping an eye out for any heavy rains disrupting the harvesting rounds."

Benchmark April palm oil futures on the Bursa Malaysia Derivatives Exchange settled up 0.1 percent at 3,169 Malaysian ringgit ($1,030) per tonne.

Traded volumes were thin after the long weekend at 9,267 lots of 25 tonnes each, versus the usual 25,000 lots.

Reuters technical analyst Wang Tao said palm oil was expected to drop to 3,136 ringgit per tonne, as it could have completed a rebound from an hourly chart low of 3,103 ringgit.

The Malaysian Meteorological Department did not issue any warnings for Wednesday, although traders are watching out for heavy rains and flash floods in parts of the southern state of Johor and Sabah, on the island of Borneo, which account for at least 60 percent of output.

Investors are concerned wet weather may complicate production and distribution of the edible oil, artificially lowering supply and pushing prices up.

Traders are expecting a more pronounced slowdown in Malaysian palm oil exports after the Lunar New holidays although China, the world's No.2 buyer of the tropical oil, may restock as inventory levels come down. 

Cargo surveyors Intertek Testing Services and Societe Generale de Surveillance is due to issue Jan 1-25 palm oil exports on Thursday.

Brent crude held above $110 on Wednesday on supply concerns as Iran renewed a threat to close the vital Strait of Hormuz while prospects for demand growth look set to improve, with positive economic indicators from Europe and the United States.

Higher crude oil supports the price of vegetable oil that is increasingly getting channeled into the biodiesel sector.

The U.S. soyoil contract for March delivery inched down 0.2 percent after paring earlier gains on unfavourable south American crop weather. China's commodity markets are closed for Lunar New Year this week. 
     
  Palm, soy and crude oil prices at 1008 GMT
                                                               
  Contract                 Month    Last   Change     Low    High  Volume
  MY PALM OIL          FEB2    3171    +8.00    3171    3185      53
  MY PALM OIL          MAR2    3171    +9.00    3167    3192    1808
  MY PALM OIL          APR2    3169    +4.00    3162    3190    4233
  CHINA PALM OLEIN SEP2    8044   +84.00    7998    8056   49542
  CHINA SOYOIL        SEP2    9054  +116.00    8968    9068  205158
  CBOT SOY OIL        MAR2   51.46    +0.11   51.20   51.52    3681
  NYMEX CRUDE       MAR2   98.20    -0.75   98.18   99.37   17209
                                                               
  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