31/05/2012 (Reuters) - Malaysian palm oil futures snapped a four-day rally on Wednesday, falling more than 2 percent as euro zone debt jitters weighed on prices, although losses were capped by expected demand ahead of the Muslim fasting month of Ramadan in July.

European shares slipped and the euro touched a 23-month low on Wednesday as investors worried that Spain's banking problems would push its borrowing costs to unsustainable levels and after China signalled it is not planning a large stimulus package.  

The benchmark August palm oil futures on the Bursa Malaysia Derivatives Exchange ended 2.1 percent lower at 3,111 Malaysian ringgit ($990) per tonne. Prices, which earlier hit a low at 3,106 ringgit, have slipped more than 10 percent this month.

Traded volumes stood at 17,601 lots of 25 tonnes each, compared with Tuesday's total at 15,689 lots.

Palm oil is "taking its cue from macro uncertainties," said a Kuala Lumpur-based trader. "If Europe fail to provide the much needed simulation, it will have more downside."

Last week, palm prices were weighed down as no significant breakthrough was made in resolving Europe's debt crisis, sending the benchmark down to its lowest level this year at 2,993 ringgit per tonne. 

Palm oil will drop to 3,069 ringgit per tonne, driven by a wave (5), the fifth wave of a five-wave cycle, said Reuters market analyst Wang Tao based on technical analysis.

"The market fundamentals are still bullish because of slower production and exports not being too bad, but outside factors really scared buyers," said a Jakarta-based buyer.

But highlighting how jittery investors are, benchmark palm prices rose to their highest peak in almost two weeks earlier this week as investors keep a close eye on weather conditions in the United States. 

Soybeans rose for a fourth straight session, supported by dryness in parts of the U.S. Midwest, tight supplies from South America and strong Chinese demand.

"Palm oil today is down a bit," a second Kuala Lumpur-based trader said. "With the euro zone crisis dragging ... everything is uncertain."

"So far so good," he added on the U.S. weather patterns. "But it's only the initial part of the planting season."

Also helping to boost palm prices, according to traders, was a rise in demand from India and Pakistan for Ramadan, where fasting in the day is followed by feasting in the evening.

"We are moving into the fasting season, where demand is going to come in and pick up," the second trader added.

In other vegetable oil markets, the most active Dalian soyoil September contract eased slightly.

Brent crude oil fell below $106 per barrel as fears intensified about the future of Spain's banks, while China signalled it was not planning a large stimulus package, dimming demand prospects.   
     
    Palm, soy and crude oil prices at 1008 GMT :
 
  Contract        Month    Last   Change     Low    High  Volume                                                    
  M'ASIA PALM OIL  JUN2    3100   -40.00    3098    3100      30                                                    
  M'ASIA PALM OIL  JUL2    3109   -61.00    3109    3161    3342                                                    
  M'ASIA PALM OIL  AUG2    3111   -67.00    3106    3160   17601                                                    
  M'ASIA PALM OIL  SEP2    3105   -67.00    3105    3156    3692                                                    
  DALIAN SOY OIL   JAN3    9304   -32.00    9288    9350  339358                                                    
  CBOT SOY OIL     JUL2   49.85    -0.32   49.85   50.36    6336                                                    
  NYMEX CRUDE      JUL2   89.61    -1.15   89.55   90.92   22007                                                    
   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 = 3.1500 Malaysian ringgit)