KUALA LUMPUR, Oct 24 (Reuters) - Malaysian palm oil extended its rally onWednesday on expectations that the government will subsidise risinginsurance costs for oils shipments to Pakistan and the Gulf.Insurance premiums spiked after the U.S.-led strikes on Afghanistan.Malaysian Primary Industries Minister Lim Keng Yaik said on Tuesdayinsurance surcharges for a tonne of palm oil to the war-risk areas hadrisen $1-$5 and exporters were told of the exact difference only 48 hoursbefore their cargo reached port.Lim said he planned to ask Prime Minister Mahathir Mohamad's cabinet,which meets every Wednesday, to subsidise the higher premiums if it could.News of Lim's proposal came an hour before the market closed on Tuesdayand pushed the benchmark third-month January contract up 18 ringgit.The contract was up another 14 ringgit at 947 ringgit ($249.21) a tonne atmidday on Wednesday. Volume was moderate at 911 tonnes.Sentiment was also helped by an overnight rise in U.S. soyoil futures,whose prices usually move in step with palm oil."But it had more to do with the insurance subsidy. People think theremight be some news on it soon," said a trader.Lim said on Tuesday that he expected Mahathir's cabinet to make a decisionon his proposal by next week.He said about 2.5 million tonnes, or 25 percent of Malaysia's palm oilexports, head to Pakistan and the Middle East.Dealers said market thinking was that there would be more exports to thewar-risk areas in the event of a subsidy, although the fundamentals ofsupply and demand would still rule.Trading in physical palm oil followed the trend set by the futures market.Crude palm oil for October was bid/asked at 860/870 ringgit a tonne in thesouthern region. The contract was traded at 855-860.November (south) was at 875/885 and traded at 870 to 875.The central region market for October was heard 865/875 and traded at 860to 865.November (central) was bid/asked at 880/885. No business was reported.Among refined products, November RBD palm oil was offered at $247.50 atonne and December at $252.50.Offers for November RBD olein were at $255 and December at $262.50.November RBD palm stearin was offered at $240 a tonne while November palmfatty acid distillate was offered at $212.50.