UPDATE 1-Malaysia palm stocks hit 10-mth high, sell-off eyed

* Stocks highest since December, will hit sentiment

* Output surging due to strong yields in Sabah state

* http://graphics.thomsonreuters.com/119/MY_PLMSTX01109.gif (Adds details, quotes)

KUALA LUMPUR, Nov 10 - Malaysia's October palm oil stocks surged 25 percent to hit a 10-month high as a seasonal uptick in output more than outpaced exports, which could possibly prompt a sell-off in the market.

The Malaysian Palm Oil Board (MPOB) reported on Tuesday that stocks in the world's No 2 supplier hit 1.97 million tonnes, the most since December and well past market expectations. [PALM/POLL]

The levels represent 66 percent of Malaysia's 3 million tonnes storage and refining capacity compared to just 50 percent a month ago, suggesting supply was rising fast because of improving yields in top producing state Sabah on Borneo island.

That may see benchmark Malaysian palm oil prices <KPOc3> squeezed further this week, despite a cargo surveyor reporting an 18.9 percent jump in Nov. 1-10 palm oil exports from the Southeast Asian country. [PALM/ITS]

"Exports are totally overshadowed. Stocks will weigh on prices for the most of the year, unless crude oil goes beyond $80 a barrel," said a trader with a local commodities brokerage.

"Sabah is the main factor. The yields have just shot up. In some places in Sabah, they were talking about a 30-40 percent jump."

MPOB said output grew 27.4 percent to 1.99 million tonnes, with Sabah accounting for a third of the total. Plantation owners say Sabah's yields improved after months of biological tree stress that settled in following bumper crops last year.

The hotter weather brought by the El Nino climate pattern in the middle of the year had worsened biological tree stress and sapped yields in Sabah and the rest of Malaysia, but the effect appeared to have receded, one grower said.

"El Nino? What El Nino? We have been getting good rains and sunshine now. Production will rise faster than exports till the end of the year," said a plantation owner.

But analysts have warned that warmer temperatures will limit the development of oil-producing female palm flowers and the full impact will be seen at the start of the year because the flowers take 6-7 months to mature.

MPOB pegged exports jumping 11.75 percent in October to 1.48 million tonnes and traders say this may be a one-off jump.

"Sure, cargo surveyor data for November was bullish but it's just the start of the month," said another trader. "Many Asian buyers traditionally wind down their purchases towards the end of the year and we will be stuck with lots of stock."

The following is a breakdown of Malaysian Palm Oil Board figures and Reuters estimates for October:

Oct 09 Oct 09 Poll Sept 09 Oct 08 Output 1,985,055 1,806,000 1,557,764 1,652,071 Stocks 1,974,462 1,820,000 1,579,252 2,091,407 Exports 1,478,317 1,450,000 1,322,900 1,335,577 (Additional reporting and writing by Niluksi Koswanage)