Kuala Lumpur, July 18 - Malaysia crude palm oil futures tumbled as much as 2.2 percent on Friday to a more than two month low, as softer crude oil prices dampened prospects for vegetable oil-based biofuels, which could curtail overall demand further.

Palm oil is struggling to hold on to gains of about 10 percent made so far this year, thanks to faltering food and fuel demand, which have led inventory levels to balloon to record levels.

The benchmark October contract on the Bursa Malaysia Derivatives Exchange fell as much as 77 ringgit to 3,358 ringgit ($1,036) per tonne, a level unseen since May 7. By the midday break, the contract was trading down 70 ringgit at 3,365 ringgit.

"The culprit is crude oil. At high prices, crude oil rations demand for all food including palm oil and when it starts to tumble, biodiesel demand is now bound to come off a little," said a trader with a domestic brokerage.

Other traded months fell between 34 and 57 ringgit. Overall traded volumes rose at 6,633 lots of 25 tonnes from the usual 5,000 lots.

Traders says the market is unlikely to recover soon unless there are clearer indications of a pick-up in Asian festival demand.

"There will be no real gains until inventories start to deplete on the account of fresh buying from China, India and Pakistan," said another trader with a foreign commodities.

Buyers in China, India and Middle East nations tend to stock up at least two months before the Asian festival season begins in early September with the Muslim fasting month Ramadan.

But exports have been dismal so far, with cargo surveyor Societe Generale de Surveillance reporting a steeper fall of nearly 20 percent to 485,181 tonnes.

Oil prices edged back towards $130 a barrel on Friday as buyers crept back into the market after a more than 10 percent slide in the past three days.

Vegetable oils lost some ground after the sell-off in crude. August soyoil at the Chicago Board of Trade fell 0.4 percent on profit taking, extending losses made overnight. The most-active January 2009 soyoil contract on China's Dalian Commodity Exchange dropped 1.6 percent.

In Malaysia's physical market, crude palm oil for July shipment in the southern region was quoted at 3,385/3,400 ringgit a tonne. Trades were unquoted by the end of the morning session.