EU wheat rises with Chicago as Ukraine war tensions prompt short-covering

PARIS, June 2 (Reuters) - Euronext wheat rose on Monday in step with U.S. futures as news of a Ukrainian drone attack deep inside Russia rekindled war concerns, though prices pared gains as favourable crop prospects and slow demand hung over the market.

September milling wheat BL2U5, the most active position on Paris-based Euronext, settled 0.9% up at 202.50 euros a metric ton. The front-month position had earlier risen to 206 euros as it recovered from Thursday's contract low of 200.25 euros.

Chicago wheat Wv1 climbed more sharply, with additional support from a drop in the dollar, but the U.S. market also lost impetus by the European close. GRA/

Russia and Ukraine held their second round of direct peace talks since 2022 in Istanbul on Monday, with negotiations overshadowed by Kyiv's attack on Sunday on some of Moscow's nuclear-capable bombers far inside Russian territory.

"There are worries about an escalation of the conflict after the Ukrainian drone attack," a futures dealer said.

Investment funds hold large short positions in Euronext and Chicago wheat, leaving the markets prone to waves of short-covering.

Gains on Euronext were capped by strength in the euro, which made Western European wheat more expensive for export at a time of slow international demand. GRA/TEND

"Russian prices are stable and Matif (Euronext) is looking a few dollars too dear for export," another dealer said.

Easing weather concerns for wheat crops were also keeping prices in check.

Rain in parched areas of northern Europe in the past week, including the far north of France, has tempered drought worries.

French wheat crop conditions declined in the week to May 26 but less sharply than in the previous week, data from farm office FranceAgriMer showed on Friday.