09/08/2012 (Reuters) - Malaysian crude palm oil prices fell to near eight-week lows on Wednesday on expectations that stocks of the edible oil recovered in July.

Stocks likely climbed in July to their highest since February as exports slow and production rises, snapping four straight months of declines, a Reuters survey showed on Wednesday.

Industry regulator Malaysian Palm Oil Board (MPOB) will release official stock and output data on Friday.

"Traders are nervous and funds have built massive long position in grains," said a dealer with a local commodities brokerage in Malaysia. "Fundamentals are not looking good with higher output and tepid demand."

Benchmark October palm oil futures on the Bursa Malaysia Derivatives Exchange fell 1.5 percent to close at  2,864 ringgit ($922) per tonne. Prices earlier touched a low of 2,854 ringgit, a level last seen on June 15.

Total traded volume picked up after the midday break to 28,933 lots of 25 tonnes each, higher than the usual 25,000 lots.

For the week, investors are awaiting other key figures, including a monthly supply and demand report from the U.S. Department of Agriculture (USDA) that could provide some clues on soybean production trends and the extent of drought damage. 

Tighter supplies of soybeans to be converted into soybean oil could shift vegetable oil demand to cheaper palm oil.

Market participants are also looking out for the Malaysian palm oil export data for the first 10 days of August due on Friday, especially after a dismal showing in July.

On the weather front, palm oil investors are watching out for a possibility of El Nino returning to Southeast Asia, as the hot and dry weather pattern could damage palm oil yields for top producers Indonesia and Malaysia.

Brent crude oil steadied above $111 per barrel on Wednesday, just below 12-week highs but supported by worries over falling North Sea output and hopes for more economic stimulus measures on both sides of the Atlantic.

In other vegetable oil markets, by 1007 GMT, the most active U.S. soyoil contract for December delivery was almost flat. The most active January 2013 soyoil contract on the Dalian Commodity Exchange closed 0.5 percent lower.

  Palm, soy and crude oil prices at 1007 GMT

  Contract        Month    Last   Change     Low    High  Volume
  MY PALM OIL      AUG2    2785   -89.00    2785    2850     119
  MY PALM OIL      SEP2    2821   -63.00    2810    2874    1531
  MY PALM OIL      OCT2    2864   -43.00    2854    2911   15773
  CHINA PALM OLEIN JAN3    7758   -60.00    7754    7810  200732
  CHINA SOYOIL     JAN3    9536   -52.00    9536    9596  363868
  CBOT SOY OIL     DEC2   52.10    -0.01   52.09   52.45    6679

  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
  ($1=3.1 Malaysian ringgit)