GRAINS-Short-covering rally boosts wheat to 10-week high

* Wheat rallies 3.4 percent as traders cover shorts

* Soybean futures fall on pressure from harvest outlook

* Wheat breaks through $5-a-bushel threshold (Recasts with closing prices, adds new analyst quote)

CHICAGO, Oct 13 - Wheat futures rose 3.4 percent at the Chicago Board of Trade on Tuesday, closing at a 10-week amid heavy short covering, traders said.

"The only bullish news in the wheat is how many shorts are in the market," said Frank Cholly, senior market strategist at brokerage Lind-Waldock. "This was a short-covering rally."

The wheat market has been under pressure during the past few months due to abundant supplies around the globe. Additionally, the weak global economy has kept demand for wheat light due to lowered feeding needs at many livestock and poultry producers.

CBOT December soft red winter wheat settled up 17 cents at $5.11-1/4 a bushel, the nearby contract's highest close since it finished at $5.28-3/4 a bushel on Aug. 5.

"Everyone's talking about the world being awash with wheat, but the market has factored that in and it is time to move on," said Paul McKay, a director of Commodity Broking Services in Australia.

There were weather risks around the next U.S. wheat crops as wet weather was delaying plantings of winter crops, while estimates of other crops, such as the French crop, were being reduced, McKay said.

U.S. soybean futures fell on Tuesday as traders locked in profits from a Monday rally amid some forecasts for better harvest weather around the Midwest.

"Wet weather continues this week, but there are some forecasts for drier next week," said Dan Cekander, analyst for Newedge USA. "Some are drier but some are not."

Periods of light rain and drizzle around the Corn Belt this week should lift by the weekend, giving farmers a brief window to harvest before more storms arrive in the middle of next week, according to forecaster Mike Palmerino of DTN Meteorlogix.

The pressure from the prospect of a pick-up in the pace of harvest overcame supportive outside markets, such as a weak dollar.

"Weather looks better. There's a little drier forecast," said Joe Bedore, CBOT floor manager for trade house FC Stone. "The only thing that would rally it today would be the dollar weakness and more fund buying."

CBOT November soybean futures closed down 6 cents at $9.93 a bushel.

Corn prices ended slightly higher on spillover strength from gains in the wheat market. CBOT December corn futures, which traded as low as $3.74-1/4 a bushel, closed up 1/2 cent at $3.81-3/4 a bushel.

The U.S. Department of Agriculture was due to release its weekly harvest update on Tuesday afternoon. Analysts were expecting the report to show the corn harvest was 15 to 20 percent complete and soybean harvest was 25 to 30 percent complete.

Wheat prices also rose on European markets, with Euronext November wheat futures up 0.75 euro at 128.50 euros a tonne.

The market was watching for Wednesday's supply and demand estimates from France's farm office to see the impact of Monday's unusually late cut in government estimates for this year's wheat area that led to a 1 million tonne reduction in projected output. CBOT settlement prices

Last Change Pct 2008 YTD

Chg Close Pct Chg --------------------------------------------------------------- CBOT corn 3.8175 0.0050 0.1 4.07 -6.2 CBOT soy 9.9300 -0.0600 -0.6 9.7225 2.1 CBOT meal 326.30 3.50 1.1 300.5 8.6 CBOT soyoil 0.3586 -0.0044 -1.2 0.3329 7.7 CBOT wheat 5.1125 0.1700 3.4 6.1075 -16.3 CBOT rice 13.9000 0.1050 0.8 15.34 -9.4 EU wheat 128.50 0.75 0.6 137 -6.2 US crude 74.30 1.03 1.4 44.60 66.6 Dow Jones 9886 0 0.0 8776 12.6 Gold 1060.60 5.35 0.5 878.20 20.8 Euro/dollar 1.4833 0.0055 0.4 1.3978 6.1 Dollar Index 75.9190 -0.2070 -0.3 81.1510 -6.4 Baltic Freight 2646 -50 -1.9 774 242 *In U.S. dollars, front-month contracts, except EU wheat, which is in euros, CBOT wheat, corn and soybeans per bushel, rice per hundredweight, soymeal per ton and soyoil per lb.