* Forecasts of more U.S. drought stress support * Palm oil to rise to 3,208 ringgit -technicals * Traders expect further downgrade of soy crop condition (Updates prices) By Chew Yee Kiat SINGAPORE, July 16 (Reuters) - Malaysian crude palm oil futures ended Monday higher, as demand prospects brightened after forecasts of more harsh weather in the United States threatened to tighten global oilseed supply further. Unfavourable weather that could hurt the soybean crop may lead to a smaller supply of soybean oil, shifting demand to the cheaper refined palm oil. "One reason for the market rally today is the U.S. weather. Another reason is the big spread between soybean oil and palm oil that is more than $200 per tonne," said a trader with a foreign commodities brokerage in Malaysia. Benchmark October palm oil futures on the Bursa Malaysia Derivatives Exchange gained 1.7 percent to close at 3,122 ringgit ($981) per tonne, after going as high as 3,161 ringgit. Traded volumes stood at 29,738 lots of 25 tonnes each, higher than the usual 25,000 lots. Technicals are also bullish. Reuters market analyst Wang Tao said palm oil might break above a resistance at 3,168 ringgit, and rise further to 3,208 ringgit. Traders appeared unfazed by a 21 percent drop in Malaysian exports for the first 15 days of the month as weather fears remained in focus. "I don't think exports will affect the market temporarily, plus the month is not over yet so the market is still waiting for demand to pick up," the Malaysian trader said. Demand is expected to be supported ahead of a slew of Asian festivals starting with Ramadan this week and with China and India celebrating key holidays from September to November. Another cargo surveyor, Societe Generale de Surveillance, will issue export data later on Monday. Drought stress has already dragged soy crop condition ratings to the lowest point for this time of year since 1988, and traders are expecting further downgrades in the U.S. Department of Agriculture's weekly report on Monday. Traders said weather-driven rallies in other vegetable oil markets also supported palm oil prices. By 1003 GMT, the most active U.S. soyoil for December delivery gained 1.2 percent. Th e most active January 2013 soyoil contract on the Dalian Commodity Exchange closed up 2.8 percent. "Supportive factors such as the U.S. dry weather pushed prices to new highs. It's hard to say now if prices will continue to go higher, but declines last week have provided good upside for Dalian soybean oil," said Huang Zhi Qiang, an analyst with Guotai Junan Futures in Shanghai. Crude oil prices held steady above $102 a barrel on Monday, supported by weekend comments from China's Premier Wen Jiabao that the government would step up efforts to boost the economy of the world's second-largest oil consumer. Palm, soy and crude oil prices at 1004 GMT Contract Month Last Change Low High Volume MY PALM OIL AUG2 3100 +41.00 3093 3139 612 MY PALM OIL SEP2 3114 +49.00 3102 3152 5986 MY PALM OIL OCT2 3122 +51.00 3109 3161 17710 CHINA PALM OLEIN JAN3 8252 +242.00 8100 8280 321816 CHINA SOYOIL JAN3 9886 +272.00 9720 9906 789272 CBOT SOY OIL DEC2 55.18 +0.64 54.78 55.48 12008 NYMEX CRUDE AUG2 86.69 -0.41 86.46 87.35 21189 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=3.182 Malaysian ringgit)

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