Soy snaps 5-day fall as China mulls tax cut

* Possible China import tax cut seen bullish for soy, corn

* Corn, wheat also buoyed by strong weekly U.S. exports

* Soy, corn, wheat up but below recent multi-year highs (Corrects headline and lead sentence to say soybeans snapped a five-day slide, instead of four-day) (New throughout; recasts with U.S. trade; changes dateline from previous SYDNEY/MILAN, changes byline)

By Julie Ingwersen

CHICAGO, Feb 17 (Reuters) - U.S. soybean futures on the Chicago Board of Trade rallied 2 percent on Thursday, snapping a five-day slide after news that China was considering cutting import taxes on food.

Corn also rose solidly on the Chinese news and strong weekly U.S. export sales, while wheat posted milder gains.

A weaker dollar added to bullish sentiment.

At the CBOT as of 11:17 a.m. CST (1717 GMT), March soybeans were up 28 cents at $13.94 per bushel. The market rebounded after fund selling pushed prices off a 29-month high set last week at $14.55-3/4.

March corn gained 13-3/4 cents at $7.04-1/4 and March wheat rose 7 cents to $8.44 a bushel. As with soybeans, corn and wheat rallied after profit-taking had knocked both markets from their highest levels since 2008.

"Gains here today exceeded early market expectations," said Rich Feltes, vice president of research for R.J. O'Brien.

"Today is about China potentially taking down its import tariff ... In my view, this action is addressing the Chinese food inflation problem head-on. It's a real solution, as opposed to a phony solution such as investigating speculators or capping edible oil prices."

China's Ministry of Commerce has asked other ministries to consider potential cuts in import taxes on a range of goods including food, two sources said.

Details of the cuts were unclear, but influential trading firm JCI cited a trader in Singapore as saying China may cut the soybean import tax to 1 percent, from 3 percent, and the soyoil import tax to 5 percent, from 9 percent.

If confirmed, such cuts would boost Chinese soy-crushing margins, Feltes noted.

CBOT soybeans and soyoil futures received a technical boost as the March contracts in both commodities rallied back above their 50-day moving averages.

Open interest in CBOT soyoil futures fell by more than 9,600 contracts on Wednesday, the biggest drop among agricultural futures, preliminary exchange data showed.

The rally in soyoil on Thursday on strong volume appeared to show investors rushing back in.

STRONG U.S. CORN, WHEAT SALES

Along with the China news, corn and wheat drew support from higher-than-expected weekly U.S. export sales.

The U.S. Department of Agriculture said U.S. corn sales exceeded 1 million tonnes for a third straight week, with Mexico accounting for 62 percent after a cold snap damaged its winter corn crop.

The USDA reported U.S. wheat sales in the latest week at 726,200 tonnes, above estimates for 400,000 to 600,000 tonnes.

Also bullish, China, the world's largest wheat producer, said a drought in the northern wheat areas was likely to last, putting the winter crops in further jeopardy.

China has increased wheat imports over the past two years, but the rise was driven mainly by cheap global prices and a search for higher-quality wheat, rather than domestic shortages.

(Source: http://www.forexyard.com/en/news/GRAINS-Soy-snaps-5-day-fall-as-China-mulls-tax-cut-2011-02-17T183431Z-CORRECTED)