EU wheat slides with Chicago as holiday rally stalls

PARIS, Jan 3 (Reuters) - Euronext wheat fell sharply on Friday to retreat from a six-month peak as losses in Chicago grains and a rebound in the euro encouraged profit-taking after a holiday rally seen as overdone, dealers said.

Benchmark March milling wheat BL2H5 on Paris-based Euronext settled 2.6% down at 233.00 euros ($240.06) per metric ton.

The fall broke a four-session rise that had seen the contract set a highest front-month price BL2c1 since mid-June on Thursday at 239.50 euros.

Breaching of technical resistance had encouraged short-covering in light holiday volumes either side of the New Year holiday, as some investors adjusted large short positions.

Hot, dry weather in Argentina had also raised concerns about corn and soybean crops, while mixed winter wheat conditions in Russia were nurturing doubts about supply in the world's biggest wheat exporting country.

But Friday's rebound in the euro EUR=, after a two-year low against the dollar, and lower than expected weekly U.S. grain export sales put the focus back on export competition.

Some traders, meanwhile, took the view that weather worries were premature.

"The rally was based on short-covering by funds and some end-user buying in thin volumes," one futures dealer said.

"Russia isn't that bad for crops, though it's been too warm and dry there so if there's a cold snap things could worsen."

In rapeseed, February futures COMG5 on Euronext settled 2.7% down at 510.25 euros a ton, pressured by the euro and weakness in U.S. soybeans. GRA/

The contract nonetheless held above Tuesday's four-week low of 505.00 euros.

($1 = 0.9706 euros)

(Reporting by Gus Trompiz;
Editing by Alison Williams)

((gus.trompiz@thomsonreuters.com))