24/10/2011 (Reuters) - Malaysian palm oil futures inched up on Friday as investors waited for a weekend meeting of euro zone leaders for signs of resolving the region's debt crisis that could plunge the world into recession if left unchecked.

Palm oil futures are set for their smallest weekly gain in October with prices see-sawing this week on conflicting reports over European governments reaching a deal to contain the crisis that could slow economic growth and commodity demand.

France and Germany cleared the confusion by saying on Thursday that leaders would discuss a holistic solution to the crisis on Sunday although no decision will be adopted before a second meeting to be held by Wednesday.

Palm oil is widely used in Europe, the second-largest consuming region after Asia, for food and fuel. A slowdown in Europe could weaken some demand although palm oil could maintain its market share in the region as it is the cheapest edible oil.

"It is all eyes on the euro zone. They better get it right this time as there is too much uncertainty in markets like palm oil that are not fully reflecting fundamentals," said a trader with a brokerage in Kuala Lumpur.

Benchmark January palm oil futures FCPOc3 on the Bursa Malaysia Derivatives Exchange settled up 0.6 percent to 2,883 ringgit ($921.292) before going as high as 2,903 percent.

Traded volumes were light at 21,057 lots of 25 tonnes each, compared to the usual 25,00 lots as most of the market was cautious ahead of the European summit.

Reuters technical analyst Wang Tao said palm oil will revisit the previous trading session's low of 2,822 ringgit as it will continue a short-term downtrend that started at the Oct. 17 high of 2,946 ringgit.

The palm oil market has been trading in a weak contango -- where the third month or the most active month is at a discount to later contracts -- on expectations of production continuing to rise in the short term.

"Fundamentals tell part of the story, but the contango is getting more pronounced as some players could be rolling their shorts to later months," said another trader in Malaysia.

The market on Thursday came under pressure after cargo surveyors said Malaysian palm oil exports were above 1.03 million tonnes for Oct. 1-20 compared to the same period a month ago, meeting expectations. European demand lifted exports.

October exports have largely been driven by higher crude palm oil shipments out of Malaysia after Indonesia kept export taxes on its cargoes virtually unchanged, triggering a shift.

But Malaysian crude palm oil has lost that discount to the Indonesian grade, potentially slowing down orders in the coming days as Indonesia has ample production, traders said.

U.S. soyoil for December delivery rose 0.3 percent in Asian trade on cautious optimism ahead of the European meeting although gains were curbed by a rapid U.S. soy harvest.

China's most active May 2012 soybean oil contract and RBD palm olein both rose more than 1 percent.

"The rebound seen in the Dalian market today is mostly technical. Most traders are still cautious as the outlook for the euro zone crisis still remains unclear," said Li Xiaoli, an analyst with Beite Futures.

  Palm, soy and crude oil prices at 1008 GMT.

                                                                      
  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 = 3.129 Malaysian Ringgit)