* Forecast for rains in U.S. raises soybean outlook * Oct palm oil futures touch 2,904 ringgit, lowest since June 18 * Coming up: Malaysian palm exports for July 1-25 on Wednesday By Chew Yee Kiat SINGAPORE, July 24 (Reuters) - Malaysian crude palm oil futures dropped to the lowest level in five weeks on Tuesday, extending losses from the previous day as forecasts for rain in the U.S. Midwest improved the production outlook for soybeans. An improved production outlook for soybeans could see a higher supply of competing soybean oil, narrowing its premium to palm oil and attracting some demand away from the tropical oil. A gloomy global economic outlook also weighed on palm oil and other commodity markets, with a surge in Spain's borrowing costs raising concern that the country could seek a costly bailout. "Prices are reflecting macroeconomic risk aversion, but technically palm prices are terribly oversold," said a trader with a local commodities brokerage in Malaysia. "Prices have again became attractive and exports should soon show signs of recovery. Consumers will soon bargain-hunt as prices are relatively cheap." The benchmark October palm oil futures on the Bursa Malaysia Derivatives Exchange lost 2.1 percent to close at 2,926 ringgit ($921) per tonne after trading as low as 2,904 ringgit, the lowest since June 18. Traded volume stood at 38,763 lots of 25 tonnes each, much higher than the usual 25,000 lots as investors rushed to liquidate their positions. Weather updates on Monday forecast some rains for soybean crops in the U.S. Midwest this week, helping to offset a weekly crop condition report from the U.S. Department of Agriculture that downgraded soy crop ratings. Investor sentiment also weakened as the euro was not far from a two-year low against the dollar, undermined by Moody's change in its ratings outlook to negative for Aaa-rated Germany, the Netherlands and Luxembourg amid Europe's ongoing debt crisis. Palm oil traders will be looking out for Malaysia's palm oil export data for the July 1-25 period, due to be released on Wednesday, after shipments fell 23 percent over the first 20 days of July from a month earlier. The market is also watching for signs of El Nino returning to Southeast Asia as the hot and dry weather could hurt palm oil output for top producers Indonesia and Malaysia. In other markets, crude oil rose above $103 per barrel on Tuesday after China's economy showed signs of improvement, but gains were checked by further evidence of damage to Europe's economy. Declines in other vegetable oil markets underlined similar investor concerns over wetter weather in the U.S. and the euro zone debt crisis. By 1004 GMT, the most active U.S. soyoil for December delivery was down 2.3 percent. The most active January 2013 soyoil contract on the Dalian Commodity Exchange closed 2.7 percent lower. Palm, soy and crude oil prices at 1005 GMT Contract Month Last Change Low High Volume MY PALM OIL AUG2 2914 -48.00 2893 2937 658 MY PALM OIL SEP2 2912 -64.00 2895 2944 4805 MY PALM OIL OCT2 2926 -64.00 2904 2953 24110 CHINA PALM OLEIN JAN3 7706 -202.00 7592 7748 269814 CHINA SOYOIL JAN3 9396 -274.00 9284 9478 579114 CBOT SOY OIL DEC2 53.40 -1.18 53.11 54.62 13770 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=3.177 Malaysian ringgit)

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