GRAINS-Grains turn higher as crude oil rallies; soy weak

* U.S. grains bounce, following as weak dollar lifts crude

* Wheat sets fresh lows before rebounding

* Friday's USDA report awaited for crop revisions (Recasts with U.S. prices, changes byline, changes dateline from previous PARIS/SYDNEY)

CHICAGO, Sept 9 - U.S. wheat and corn prices turned higher by midsession on Wednesday, rallying from early declines on the coattails of rising crude oil prices as weakness in the dollar bolstered investment in commodities.

"Crude oil perking up is helping. People were surprised how weak it was overnight," said Dan Cekander, grains analyst with brokerage Newedge USA.

U.S. crude oil futures were up more than $1, rising above $72 per barrel for the first time this month as the dollar touched new lows for 2009 against major currencies.

Oil's strength enabled Chicago Board of Trade corn and wheat futures to stabilize after sliding in recent days, with corn falling below $3 a bushel for the first time since December and wheat hitting its lowest spot price since April 2007.

Grain traders were also covering short positions ahead of the U.S. Department of Agriculture's monthly crop report on Friday, which is expected to raise estimates on what are already forecast to be bumper crops.

"A lot of people just think we've done enough to the downside here ahead of the report, We don't know how the report is going to be," said Vic Lespinasse of GrainAnalyst.com.

Earlier, CBOT wheat slumped to fresh lows on large global supplies.

"The interest in U.S. wheat exports just hasn't been there and is adding to the supply side pressure," said Toby Hassall, an analyst at Commodity Warrants Australia.

Year-to-date, U.S. wheat export inspections are 199.7 million bushels, down from 352.7 million bushels a year ago.

European traders painted a similar picture, adding that the strength of the euro was exacerbating their export difficulties.

"Our market is falling and falling but even so our free-on-board price in dollars is not falling that much," one Euronext trader said.

On the Chicago Board of Trade, September wheat was up 3-1/4 cents at $4.34-3/4 per bushel by 11:20 a.m. CST, after setting a new contract low at $4.26-3/4.

Corn for September delivery was up 3-1/2 cents at $3.06-1/4 a bushel.

In Europe, wheat futures in Paris set contract lows for the third straight session, with November milling wheat falling as low as 120.25 euros a tonne before inching back up to 121.50 euros.

ALL EYES ON USDA

But the main focus of grain markets this week will be Friday's USDA crop report, and continued favorable weather that should help boost late-maturing soybeans in the U.S. Midwest.

"Traders will be looking for confirmation that the production of U.S. row crops is going to be pretty healthy. There will probably be some squaring up before then," Hassall said.

Front-month September soybean futures were down 3/4 cent at $9.68-1/4 a bushel while benchmark November beans lost 3 cents, or 0.32 percent, at $9.33-1/2.