KUALA LUMPUR, July 28: Malaysian crude palm oil futures surged to close at two-year highs on Friday, fuelled by heavy fund buying and strong fundamentals.

Traders said good demand and a decline in production in July because of dry weather supported the market but fund buying took the market to above 1,600 ringgit resistance level.

Fundamentals are very strong but this kind of rise is not possible without support from the funds, said one dealer.

The benchmark third-month October contract on the Bursa Malaysia Derivatives ended up 46 ringgit at 1,620 ringgit ($442) a ton, after reaching a high of 1,626 in the morning.

That was the highest since June 2004. Other contracts rose between 42 and 51 ringgit a ton.

Overall volumes swelled to 21,241 lots of 25 tons each from 5,342 lots on Thursday.

Traders said good demand from China and anticipation of a lower output in July because of dry weather were likely to keep the market firm.

The crude palm oil market also ignored soyaoil prices which it often tracks because of common use in products ranging from food and soap to cosmetics and biodiesel.

The physical prices failed to keep pace with the futures market. Crude palm oil for August shipment saw sellers at 1,570 ringgit a ton and bids at 1,565 ringgit a ton. Trades were done at 1,560 ringgit a ton.—Reuters