Grains Week Ahead-Investors trickle back but caution prevails

* Investors' appetite for risk returns

* Will appetite last amid concerns over Japan, Libya

* Rumors of China buying lifts corn

* Weak dollar could help boost exports

* Coming up: Developments in Libya, Japan

By K.T. Arasu

CHICAGO, March 20 (Reuters) - Investors are trickling back into grain markets after a brief flight from risk.

Losses from the stampede, which began after the devastating earthquake and tsunami in Japan, have been erased in corn and soybeans, and grain markets are trending higher once again.

The appetite for risk is back, and investors are again looking at fundamentals, not withstanding the dollar .DXY, which is on track for a fourth monthly decline.

Weekly export sales were strong for corn and wheat, while the poor quality of soybeans being harvested in Brazil were rejected by some traders in Mato Grosso state.

Add to that, swirling rumors that China has bought a large quantity of U.S. corn for the first time in about five months, which helped to send grain markets soaring last week. But confidence in grain markets could evaporate just as swiftly as it returned last week when investors decided to look past Japan's nuclear crisis to the fundamentals.

Japan has been struggling to contain radiation leaks from a crippled nuclear plant, while the United Nations has authorized a no-fly zone over Libya and air strikes to protect civilians.

Libyan forces were attacking rebels even after declaring a ceasefire while France said it was ready to launch military strikes in the oil-exporting nation. The United States was deploying additional amphibious ships to the Mediterranean.

Geopolitical tensions remain high in the Arab world, with unrest escalating in Bahrain and Yemen.

"Investors are getting back their appetite for risk," said Lee Gaus, a senior analyst with International Futures Group in Chicago. "They are looking to put their money in riskier areas instead of bonds. But this can change just so quickly.

"If the crisis in Japan escalates, all this will be reversed. People will get out of risky assets," he said.

Corn futures Cc1 are up 9 percent so far this year, adding to their stellar 52 percent gain in 2010. But futures are down 6 percent from the March high of $7.35 per bushel.

So far this year, wheat futures Wc1 are down about 8 percent, after gaining 46 percent in 2010. Soy Sc1 is down 2 per cent this year, after rising 34 percent in 2010.

CHINA CORN RUMORS ROIL MARKETS

The focus could again turn to corn futures this week after two straight days of unconfirmed rumors about China buying U.S. corn for the first time in about five months.

The amounts rumored to have been purchased extended up to 1 million tonnes, comprising both new- and old-crop supplies.

Analysts and traders were divided over whether the transactions took place. Grains analyst Charlie Sernatinger of ABN Amro in Chicago said he believed China bought 500,000 tonnes of corn for shipment in September and October.

Another analyst, Jerry Gidel of North America Risk Management Inc in Chicago, however, was not a believer.

"It would be fantastic if they bought, but I don't think they did. China likes bargains, and it wasn't even with the break in prices earlier this week," he said.

Gidel also said it would be too early in the season for China, the world's second-largest corn consumer, to be booking new-crop corn supplies from the United States.

DOLLAR IN PLAY

Analysts said recent declines in the dollar .DXY could also be a significant market factor this week, as a weak greenback helps boost export competitiveness for U.S. grains.

The dollar index fell for a second straight week and is on track for its fourth monthly decline.

Corn and wheat, in particular, will benefit on the export front from a weaker dollar while soybean exports are in a seasonal decline as cheap supplies from South America flood the globe. But a trucker strike in Argentina could potentially switch some demand to the United States. [ID:nN18106578]

Traders will also be watching for any signs of demand from Japan as the country recovers from the earthquake and its aftermath.

The yen hit a record high against the dollar last week, and this could help boost Japanese demand for U.S. grains.

(Source: http://af.reuters.com/article/energyOilNews/idAFN2014604020110320)