Wheat rises on short-covering, Ukraine worries; soy turns lower

(Updates with closing U.S. prices)

By Julie Ingwersen

CHICAGO, Sept 27 (Reuters) - U.S. wheat futures rose 1.6% on Tuesday as worries about escalating conflict in Ukraine and a pause in the dollar's run-up to 20-year highs spurred a round of short-covering, traders said.

Corn futures also firmed but pared gains by the close, and soybean futures turned lower on technical selling after an early rally in Wall Street equity markets faltered.

Chicago Board of Trade December wheat WZ2 settled up 13-1/2 cents at $8.71-1/2 per bushel. CBOT December corn CZ2 ended up 1-1/4 cents at $6.67-1/2 a bushel while November soybeans SX2 finished down 3-1/4 cents at $14.08 a bushel.

Wheat advanced even as the dollar index .DXY hovered near a 20-year high set this week. A strong dollar tends to make U.S. grains less attractive to those holding other currencies.

"Funds have a big short position in Chicago (wheat) and I think they are buying some of that back. The overall strength of grains is impressive, given how much the dollar has moved up," said Sterling Smith, director of agricultural research at AgriSompo North America.

Traders were monitoring conflict in Ukraine, which has disrupted grain exports from the Black Sea, after an ally of Russian President Vladimir Putin issued a stark new nuclear warning to Ukraine and the West.

"The 'nuclear premium' in the market didn't last long, but the overall positive money flow into the grain and oilseeds continues into midday," StoneX chief commodities economist Arlan Suderman wrote in a client note.

Corn and soybean futures drew early support from a slow start to the U.S. harvest, although weather forecasts called for favorably dry conditions in much of the Midwest this week that should help advance fieldwork.

The U.S. Department of Agriculture said late Monday the corn harvest was 12% complete, behind the five-year average of 14%. The soybean harvest was 8% complete, lagging the five-year average of 13%.

But trends in outside markets remained a key driver for grain futures, given fears of a global recession that could curb demand for goods.

"We are a little starved for news, (and) harvest is just getting under way. So the macro markets are driving the bus," Smith said.

Traders await the USDA's quarterly U.S. grain stocks report on Friday, which has a history of jolting futures markets.
Additional reporting by Naveen Thukral in Singapore and Sybille de La Hamaide in Paris; Editing by Mark Potter, Leslie Adler and Richard Chang

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