KUALA LUMPUR (May 7): Malaysian palm oil futures fell on Thursday as comparative soy markets weakened and investors fretted about a build-up in stocks in the world's No.2 producer, cutting short a rally that had lifted prices up 6 percent in the past week.

Benchmark prices shot up from their weakest point of 2,070 ringgit on April 29 to a top of 2,200 ringgit on Wednesday, tracking big gains in overseas soyoil markets and as investors covered short positions after Indonesia approved a palm export levy to fund its biodiesel policies.

But prospects of swelling inventories in Malaysia, as well as investors booking profits from the rally, reined in gains, market players said.

"The preliminary data shows a much higher build-up in end-stocks. Market will see lots of position squaring ahead of MPOB on Monday," said Lingam Supramaniam, director at Malaysian-based commodities firm Pelindung Bestari.

By the midday break, the benchmark July contract on the Bursa Malaysia Derivatives exchange had edged down 0.5 percent to 2,173 ringgit ($605.80) a tonne. Total traded volume stood at 9,783 lots of 25 tonnes each, below the usual 12,500 lots.    

Industry regulator the Malaysian Palm Oil Board will release official data on the country's April palm stocks on May 11. A Reuters poll estimate end-stocks rose to a five-month high of 2.13 million tonnes, with crude palm output climbing 11.5 percent.

Indonesia has approved a regulation requiring exporters to pay a levy of $50 per tonne of crude palm oil and $30 for processed palm oil product shipments, which is expected to take effect by the third week of May.

Analysts say the new tax may adversely impact Indonesian and Malaysian companies that are solely in upstream operations in the short term, but will be overall supportive to palm prices.

"We agree with the consensus view that this is a short term pain, but could potentially boost biodiesel consumption and consequently, CPO price, in the long term," TA Securities said in a note on Thursday.

The U.S. July soyoil contract was down 0.1 percent in early Asian trade, while the most active September soybean oil contract on the Dalian Commodity Exchange fell 0.7 percent.    

Oil prices fell on Thursday after hitting 2015 highs in the previous session as an OPEC delegate indicated the group would stick to its strategy of pursuing market share rather than cutting output and traders took profit from a multi-week rally.