Grain prices rallied, returning corn back above $6 a bushel and raising wheat by 3%, as improved hopes for the eurozone, and a rebound in US consumer confidence, sent investors rushing to take profits on hefty short positions.

Chicago corn for March closed up 1.1%, if well off its intraday high, with wheat jumping 3%, after earlier turning in its best performance of the month to come within 1 cent of the $6-a-bushel mark.

Oats for March soared more than 4% to regain $3 a bushel.

The rally was down mainly to "a lack of bad news with which to beat the market with", UK grain traders at a global commodities house said, stressing Italy's achievement in selling E7.5bn in three and 10-year bonds – albeit at rates above 7.5%.

This was "seen by the market as good news, even if it they are now paying 2.7 percentage points more than last time".

Shorts scarper

Traders also cited US regulatory data out overnight showing speculators having placed historically large short bets in some agricultural commodities, notably Chicago soybeans and wheat, raising questions of where the next sellers were coming from.

"It looks like the market just ran out of sellers, and people are taking profit on shorts."

At Illinois-based North America Risk Management Services, Jerry Gidel noted analysis showing that index funds "have already been buying the corn market, the wily foxes".

'Pretty dry'

Furthermore, grains received support from expectations that Wednesday, when the expiry process for Chicago's December contracts begins, will not see any deliveries against corn.

"The basis in-country is so strong that sellers will go there instead," Mr Gidel said.

And soybeans were helped by talk of dryness in South America, with WxRisk.com forecasting that "most of central and eastern Argentina into south east Brazil will be seeing anywhere from 25-50% of normal rainfall, and 25% or less over all Paraguay" over the next week or so.

Once current showers blow over, "the next several days looks pretty dry for all of Argentina, south east Brazil and Paraguay".

'Significant crop downgrades'

Meanwhile, parts of eastern Australia are to receive more of the rains raising concerns over the quality of the current harvest.

"Continuing rains on the east coast is likely to lead to significant crop downgrades," Jon White, at Cargill-owned grain handler AWB said.