U.S. wheat futures pared losses by midday on Thursday and corn and soybean futures bounced higher as investors covered short positions ahead of a make-or-break European Union summit and on the eve of a U.S. government crop report.

Strong technical support and short-covering moves ahead of Friday's USDA crop report helped corn bounce back from an early slide despite nagging concerns that the EU summit Friday will fail to find a solution to the region's debt crisis.

News of better-than-expected weekly export sales also supported corn prices, helping the grain diverge from weaker equities and oil.

"The outside markets turned on us very quickly before the opening. But we were able to bounce off those lows," said Jeffries analyst Shawn McCambridge.

"There are critical meetings taking place over the next 24 hours. I think you are seeing some shortcovering ahead of the USDA report," said McCambridge. "USDA has surprised us in the past. It is enough to chase a few shorts out of the market."

At 11:26 a.m. CST (1726 GMT), Chicago Board of Trade March wheat futures were down 1 cent at $5.99-1/2 after falling early as low as $5.90-3/4, the lowest point since Nov. 28.

March corn futures were up 3 cents at $5.95-1/2 after sliding early to $5.85.

January soybeans were up 4 cents at $11.35, supported in part by ideas that Chinese demand for U.S. soy could pick up in the face of forecasts for dry weather in South America. A forecasted dry spell was expected to stress South American corn and soybean fields.

Wheat prices slipped to the lowest point since Nov. 28 under additional pressure from abundant wheat crops seen in Australia and Canada, and stiff export competition that has seen U.S. supplies bypassed in recent tenders.

"It seems that for the past week, wheat is the one that has been more volatile. It's more prone to huge swings, more than corn," said Lynette Tan, an analyst with Phillip Futures.

Tan said uncertainty about the EU summit on Friday was a key factor.

"People are thinking there could be no clear resolution from the summit. The general markets are falling, commodities are falling too," Tan said.

Grains futures, like other commodities, have been weighed down by fears that a global economic slowdown triggered by the euro zone debt crisis could slash demand. Firmness in the U.S. dollar has added pressure, making the U.S. commodities less competitive on world markets.

Pessimistic comments from EU paymaster Germany and new figures exposing deepening stress among Europe's banks dented financial market hopes of a turning point in the euro zone's debt crisis at the EU summit.

The USDA is expected to lower its forecast of U.S. corn stocks slightly due to rising feed use and a lackluster harvest while raising soy supplies by nearly 10 percent because of poor export demand, according to analysts surveyed by Reuters.

Brazilian government crop supply agency Conab said Brazil soybean output will tumble more than 5 percent in the 2011/12 harvest.

Also supportive, U.S. soybean exports totaled 795,600 tonnes in the latest reporting week, above trade estimates for 550,000 to 650,000 tonnes, the USDA said on Thursday.

The USDA export data showed U.S. corn exports last week totaled 708,000 tonnes, above trade estimates for 350,000 to 450,000 tonnes.

Wheat exports totaled 427,200 tonnes, below trade forecasts for 450,000 to 650,000 tonnes.

Prices at 11:26 a.m. CST (1726 GMT)

LAST NET PCT YTD

CHG CHG CHG CBOT corn 595.50 3.00 0.5% -5.3% CBOT soy 1135.00 4.00 0.4% -18.6% CBOT meal 284.70 1.00 0.4% -23.1% CBOT soyoil 50.21 -0.03 -0.1% -13.0% CBOT wheat 599.50 -1.00 -0.2% -24.5% CBOT rice 1438.00 -0.50 0.0% 2.8% EU wheat 180.00 0.00 0.0% -28.7%

US crude 98.87 -1.64 -1.6% 8.2% Dow Jones 12,092 -104 -0.9% 4.4% Gold 1711.09 -30.25 -1.7% 20.5% Euro/dollar 1.3331 -0.0083 -0.6% -0.1% Dollar Index 78.8510 0.3660 0.5% -0.2% Baltic Freight 1882 33 1.8% 6.1%

(Reporting by Carey Gillam; Editing by Marguerita Choy and David Gregorio)