GRAINS-Soy, grains rally as dollar sink

GRAINS-Soy, grains rally as dollar sinks

* Soybeans climb more than 4 percent early to 4-week top
* Weather jitters as US Midwest to heat up spurs buying

* Euronext rapeseed, wheat fired by CBOT soy

(Updates prices, adds quotes, changes dateline previous PARIS/SINGAPORE)

CHICAGO, (Reuters) - U.S. grains and oilseeds rose more than 4 percent Monday, extending last week's surge, as a weak dollar and upbeat economic sentiment spurred interest in commodities at the start of the new trading month.

The biggest early gainer was soybeans, buoyed by strong Chinese soy demand that is seen sinking the American stockpile to its lowest level in 32 years by Aug. 31.

Chicago Board of Trade soybeans for August delivery was up 37 cents to $11.71 a bushel by the midsession, after hitting an early peak of $11.90-1/2.

CBOT September corn rose 20-1/4 cents to $3.59-3/4 and nearby wheat was up 22-1/4 cents to $5.50-1/2.

"The outside markets are a big factor -- the weakness in the dollar," said Anne Frick, senior oilseed analyst with Prudential Bache Commodities. "That's supporting commodity prices in general. There seems to be a return of ideas of the possibility of commodity price inflation."

The dollar slid to its lowest in 10 months against a basket of currencies to 77.451 on Monday, stung by buoyant risk demand as equities rose on the back of solid bank earnings.

Not surprisingly, the Reuters-Jefferies CRB index of 19 commodities reached a nine-week high as commodities and the dollar move inversely. A sinking dollar is a buy signal for commodities because a weak dollar makes U.S. export commodities like grains and oilseeds more attractive to overseas buyers. Commodities are also viewed as hedge against inflation.

"In the case of soybeans specifically, you still have a very tight situation worldwide because of the outlook for lower mid-year supplies and stocks in South America," Frick added. "Even with a record large crop in the U.S., it does not look like we will be able to compensate for the reduction in supplies in South America."

China's hot demand for soybeans to crush into soymeal for livestock feed and build its soy reserves this season, coupled with Argentina's short crop, have shrunk world soy supplies.

There were fresh signs of soybean demand early Monday. The U.S. Agriculture Department confirmed the export sale of 116,000 tonnes of U.S. soybeans to unknown destinations for shipment during the 2009/10 marketing year. Even though the government did not identify the buyer, traders believe the sale was to China.

New worries about crop weather in the United States also sparked buying.

A high pressure ridge is forecast to move into the central United States later this week, with will mean hotter temperatures for Midwest Corn Belt. Highs could climb into the upper 80s to low 90s degrees Fahrenheit as the week progresses.

While warmer weather will give a boost to developing corn and soybeans -- both behind in maturity due to a cool summer -- the word "ridge" gets traders nervous.

"We've already factored in perfect weather so any perceived weather threat will rally the market," analyst Vic Lespinasse for GrainAnalyst.com.said.

The soybean rally fueled sharp gains for European rapeseed and wheat futures.

On Euronext, benchmark November rapeseed futures climbed 3.54 percent to 277.50 euros a tonne, moving further away from the contract low of 250.25 euros seen last Tuesday.

Euronext wheat was also higher, helped by firm CBOT prices, with benchmark November futures up 1.85 percent to 138 euros a tonne.