15/09/2011 (Reuters) - Malaysian palm oil futures reversed early losses on Wednesday, with investors citing an over-sold market and fluctuations in currencies, but gains were capped by a bigger-than-expected U.S.  soybean crop outlook. 

Benchmark November palm oil FCPOc3 on the Bursa Malaysia Derivatives Exchange added 1.5 percent to end at 3,065 Malaysian ringgit ($1,002) per tonne. Earlier, prices hit a low of 2,989 ringgit, the weakest since Sept. 6. 

Traded volumes for the November contract stood at 13,520 lots of 25 tonnes each, compared with 9,867 lots on Tuesday. 

"There was some negative sentiment from Dalian," said a Jakarta-based trader. "But it has now recovered. Over-sold yes, and some more ringgit weakness." 

He added that Chinese buying was also a supportive factor. 

The Malaysian ringgit touched a nine-month low, making palm oil cheaper for many refiners and investors holding other currencies.  

Benchmark prices have added 0.5 percent this week, with gains limited by a better-than-expected production outlook for the U.S. soy crop. 

Earlier this week, the U.S. Department of Agriculture unexpectedly raised its U.S. crop production outlook by 1 Percent in a monthly report, despite forecasts for a smaller crop due to hot, dry weather this summer.  

"Soy was helping palm to hold pretty well, but as we all know, the USDA report was rather bearish," said a dealer in Kuala Lumpur.  

U.S. soyoil for October delivery fell, while the most active May 2012 soybean oil contract on China's Dalian Exchange hit a near-three week low. 

Brent crude fell slightly on Wednesday, pressured by a gloomy demand outlook and expectations of increased supply from the North Sea and Libya.  

Palm oil investors are also concerned about a possible build up in stocks, at a time when exports have slipped.

Against this backdrop, Indonesia, the top palm oil producer, is set to introduce changes to its export tax boundaries.

"In the next couple of months, a key focus will be on the Indonesian export tax," Ker Chung Yang, an analyst at Phillip Futures in Singapore, said.  

"People may opt to wait on the sidelines, because they would like to see the impact first before coming back in -- especially for speculators." 

Malaysia's palm oil exports for the rest of 2011 will be flat at best with a negative outlook for next year as refiners are at a price disadvantage after Indonesia slashed refined palm olein export taxes, an industry official told Reuters.

  Palm, soy and crude oil prices at 1014 GMT
                                                                
  Contract        Month    Last   Change     Low    High  Volume
  M'ASIA PALM OIL  SEP1    3135   +31.00    3105    3135     104
  M'ASIA PALM OIL  OCT1    3099   +39.00    3040    3102    1814
  M'ASIA PALM OIL  NOV1    3065   +46.00    2989    3066   13520
  M'ASIA PALM OIL  DEC1    3058   +51.00    2980    3058    7810
  DALIAN SOY OIL   MAY2   10228  -120.00   10192   10358  567028
  CBOT SOY OIL     DEC1   57.46    -0.17   57.01   57.82    7225
  NYMEX CRUDE      OCT1   89.43    -0.77   88.53   90.25   27332
                                                                
  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 = 3.057 ringgit)