GRAINS-Soybeans up 2 pct on supply woes; Argentina strike starts

* CBOT soy rises nearly 2 percent on supply crunch

* Traders watching farmer strike in Argentina

* China buys another 110,000 tonnes of U.S. soybeans (Recasts, updates prices, market activity to close)

CHICAGO, Aug 28 - U.S. soybean futures rose nearly 2 percent at the Chicago Board of Trade on Friday as competition heated up to buy limited supplies ahead of harvest, traders said.

Tight supplies in the United States, the world's top soy grower and exporter, drove the market even as Argentine farmers began a strike protesting export taxes.

"Tight old crop stockpiles combined with robust demand continues to dominate the soybean market's psychology," said Peter McGuire, managing director of CWA Global Markets in Sydney.

Argentine farmers began an eight-day strike on Friday and threatened to extend the protest by four days, halting grain and cattle sales in one of the world's biggest suppliers of corn, beef and soybeans. U.S. traders and analysts said the strike will have no immediate impact on global soybean trade as the bulk of this year's crop has already been shipped.

Still, memories of a months-long disruption in 2008 linger in the markets.

"Now they are talking about extending the strike in Argentina," said Vic Lespinasse, analyst for GrainAnalyst.com. "The longer it goes, the more potential there is to move exports to us."

Steady soy buying by China also has added strength to the futures market despite forecasts for a record U.S. crop this fall. Private exporters reported the sale of another 110,000 tonnes of U.S. soybeans to China for delivery during the 2009/10 marketing year, the U.S. Agriculture Department said on Friday morning.

Chicago Board of Trade soybeans for September delivery settled up 21-1/2 cents at $11.35-3/4 a bushel, while the new crop November contract gained 1.5 percent to $10.11. For the week, the nearby contract rose 11 percent.

"It is all September beans, that is the game," a CBOT floor trader said.

CORN, WHEAT PRICES EASE

Corn prices fell on Friday due to favorable growing weather in the United States, which underscores the U.S. Agriculture Department's forecast of a bumper crop this year.

CBOT September corn CU9> fell 2 cents to close at $3.21 a bushel. For the week, the nearby corn contract was little changed, falling just .2 percent.

On wheat markets, CBOT wheat for September delivery WU9> fell 8 cents to $4.67 a bushel. The nearby CBOT wheat contract rose 1.5 percent during the week. November wheat BL2X9> on Euronext was down 1.00 euro at 128.50 euros a tonne.

Despite some buying following recent lows, traders remained bearish about wheat in view of swelling supplies and uncertain export demand.

"The market is holding up surprisingly well in the face of the heavy fundamentals," one Euronext trader said, adding the return of some silo directors from holidays could trigger a fresh wave of selling next week, especially with storage space still tight ahead of the maize and sunseed harvests.

The European Union's announcement of nearly 300,000 tonnes of wheat export licenses this week was considered a healthy level.

But this was not enough to shake off negative sentiment about the large surplus, particularly with Egypt overlooking French grain in its latest tender this week, operators said.

"It's a necessity to have this level of exports. But by not falling, European wheat is losing competitiveness against other origins that are more reactive," an exporter said.