EU wheat at 3-1/2 month high on Latam weather, euro

* The Paris-based market also drew support from covering of positions on the front-month January contract ahead of its expiry next week, traders said.

* Volumes were light with US and UK futures markets closed for a New Year holiday, although the closure of grain cash markets in France until Tuesday led some operators to strike deals on the futures market.

* The return of most operators this week after the year-end holiday season would show whether the rally has the momentum to test resistance levels either side of 200 euros a tonne, traders said.

* The start of the year will be marked as usual by commodity-index reweighting, as well as by the US government's monthly grains estimates due on Jan. 12.

* The most active March milling wheat contract was up 2.50 euros or 1.28 percent at 197.75 euros a tonne by 1618 GMT. It earlier climbed to 198.75 euros, a level last seen on the contract on Sept. 16.

* Next resistance was put at 199.50 euros.

* January milling wheat continued to trade higher than deferred contracts, adding 4.00 euros or 1.98 percent to 206.50 euros.

* Wheat, like other grains, has rallied since mid-December as the market has become concerned that dry, hot weather in big exporters Argentina and Brazil will tighten global supply, especially given low US corn stocks.

* "The situation is not expected to change much this week in Argentina with high temperatures and little or no rainfall," grain analysts Agritel said in a note.

* But some traders said fears about South American crops were overdone and were a buying pretext in an oversold market.

* "Overall you had a market that was short and needed to be covered," a French futures dealer said. "We also have the euro-dollar rate that is helping us."

* A weakening euro, which held below $1.30 on Monday and also set a decade low versus the yen, makes grain from euro zone exporters like France and Germany more competitive in dollar-priced export markets.

* Despite the year-end rally, front-month European wheat ended 2011 down nearly 25 percent on 2010 after steep losses between June and November.

* Rapeseed futures also stayed firm as oilseed markets remained supported by worries about soy crops in Argentina and Brazil plus heavy rain in palm oil producer Malaysia.

* For a weekly rain forecast for Brazil's soy belt:

* February rapeseed was up 3.75 euros or 0.86 percent at 442.00 euros a tonne.

SPAIN

* Physical wheat in import-dependent Spain lined up with recent gains on futures markets, although trade was subdued while dealers waited for Brussels to open bidding for licences to import wheat under the tariff-rate quota (TRQ) scheme.

* The TRQ tender to import up to some 1.6 million tonnes of low- and medium-quality wheat in the first half of 2012 is due early this month, and Spanish dealers habitually use the permits to import feed wheat from Ukraine.

* "It is very hard to find offers for January-March wheat seeing as everyone is watching out for the import (TRQ) tender," a report from the Mercolleida agricultural exchange said.

* Dealers said trading was slow because many players would be away from their desks until after the Jan. 6 Three Kings holiday.

* Prompt feed wheat was quoted at 208 euros/tonne in leading grain port Tarragona, up 2 euros from Thursday. January-March wheat had meanwhile risen 1 euro to 208 euros.

Copyright Reuters, 2011