* Palm oil technicals bearish * Market eyes massive stock build in Malaysia palm oil sector * Physical palm oil trading at a $250 discount to soyoil * Palm oil moving in tandem with soy complex declines (Updates prices, quote) By Niluksi Koswanage KUALA LUMPUR, Aug 28 (Reuters) - Malaysian crude palm oil futures slid on Tuesday as investors took profit after the market hit a six-week high the previous session, with traders watching for a big stocks build-up to weigh on prices. Palm oil, which has lost more than 4 percent this year, is moving in tandem with the U.S. soy complex, where investors have unwound bullspreads after the market recently hit a record as the worst drought in 56 years ravaged crops. A smaller supply of soybeans to be crushed into edible oil and strong palm oil production in coming months has widened palm's discount to soyoil to more than $250 per tonne. But palm oil stocks in Malaysia, the world's second-largest producer, are set to rise to more than 2.3 million tonnes, traders said, as production outpaces export growth in the second half of the year. "I sold off this morning. Palm oil is surviving on borrowed strength of soyoil markets," said a trader with a foreign commodities brokerage. The benchmark November 2012 contract on the Bursa Malaysia Derivatives Exchange dropped 2.1 percent to 3,029 ringgit ($970). The previous day, the contract hit 3,122 ringgit, a level last seen on July 17. Total traded volume stood at 22,029 lots of 25 tonnes each, slightly lower than the usual 25,000 lots. Palm oil is expected to drop to 3,007 ringgit per tonne as a five-wave cycle has completed on the rise from 2,820 ringgit to 3,122 ringgit, said Reuters analyst Wang Tao. Demand appears to be picking up, with Malaysia's exports rising as much a 6.6 percent in Aug. 1-25 from the same period a month earlier, driven by strong shipments of tax free crude grades and demand from India and China, cargo surveyor data showed. "Demand looks all right but we will see stocks go up to 2.3 million tonnes or even more for that matter in August because of production," said another trader with a foreign commodities brokerage. Other vegetable oil markets dropped on profit-taking after the soy complex hit a record on Monday, although losses were limited by firmer crude oil that was steady above $112 per barrel. The most active U.S. soyoil contract for December delivery dropped 0.2 and the most active January 2013 soyoil contract on the Dalian Commodity Exchange dropped 1.3 percent. Palm, soy and crude oil prices at 1003 GMT Contract Month Last Change Low High Volume MY PALM OIL SEP2 2974 -58.00 2974 3013 389 MY PALM OIL OCT2 3000 -68.00 3000 3055 3116 MY PALM OIL NOV2 3029 -62.00 3024 3078 15782 CHINA PALM OLEIN JAN3 8174 -112.00 8164 8260 241806 CHINA SOYOIL JAN3 9980 -136.00 9976 10072 411696 CBOT SOY OIL DEC2 56.46 -0.10 56.25 56.88 6680 NYMEX CRUDE OCT2 96.10 +0.63 95.14 96.34 22714 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 = 3.1095 ringgit)

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