The French bond auction later in the day renewed jitters about the ability of euro zone countries to refinance their debt, a concern last year that saw palm oil post its first annual loss since 2008.
Traders are also eyeing prospects of dry weather in South America lowering soy yields and heavy rains in Southeast Asia disrupting palm oil production and boosting prices.
"There is not much activity, probably because it's the beginning of the year. The weather is definitely a concern here. Plus the market has been up for quite sometime," said a trader with a foreign commodities brokerage in Malaysia.
By the midday break, benchmark March palm oil futures on the Bursa Malaysia Derivatives Exchange lost 0.3 percent to 3,215 ringgit (1,000) per tonne.
Traded volumes for palm oil futures on Thursday stood at 3,798 lots of 25 tonnes, much thinner than the usual 12,500 lots thanks to investor caution.
"Traders are still cautious and it is still early to judge the severity of draught in South America," said another dealer with a foreign commodities brokerage in Malaysia.
The Malaysian Meteorological Department issued a warning that heavy rains may last till the weekend in key oil palm growing states of Johor, Pahang, Sabah and Sarawak, which account for almost three quarters of national palm oil output.
While there have not been any reports on serious disruption due to floods, investors are watching the weather development closely as stocks in No.2 producer Malaysia are likely to fall to a five-month low in December.
Brent crude fell near $113 a barrel on Thursday as renewed jitters over the euro zone crisis overshadowed fears of Iranian supply disruption after the European Union agreed to cut off oil imports from the No. 2 OPEC producer.
In other vegetable oil markets, weather worries in Argentina continued to be a bullish factor.
The most active March US soyoil contract gained 0.1 percent in Asian trade while the most active Sept 2012 soyoil contract on China's Dalian commodity exchange rose 0.4 percent.
"We are still watching closely the South American weather development, and maybe the Iranian situation with crude oil right now," said Zhang Ru Ming, research manager with Liangyun Futures in Dalian.