(Corrects second paragraph to show 10 pct price fall over two days)
* Lower corn prices may see less demand for Australian wheat
* High corn prices seen as key to larger U.S. stockpiles
SYDNEY, July 1 (Reuters) - U.S. corn and wheat futures continued to tumble on Friday after a U.S. government report pointed to much higher-than-expected corn supplies from the world's largest exporter of the grain.
Chicago Board of Trade corn for December delivery , the harvest month contract dropped 4.75 percent to $5.91 per bushel, early Asian trade on Friday, extending the contract's two-day fall to nearly 10 percent , and hitting its lowest level since mid-March.
Corn tumbled after the U.S. Department of Agriculture (USDA) significantly raised crop prospects and stock levels, shocking market with a forecast for a potentially record-large corn crop despite an excessively wet spring.
Rabobank said the USDA report did not improve clarity and could make for choppy trade.
"In our view, there remains a lot of confusion over final plantings due to the widespread flooding this season, which significantly delayed plantings and created a lot of uncertainty around the survey period," the bank said in a market report.
Corn prices hit a record near $8.00 per bushel last month, leading to a pull-back in demand as livestock feed importing countries such as China switched to wheat.
Tumbling corn prices also pulled wheat lower and the December contract initially fell over 2 percent before recovering to trade broadly flat by mid-morning.
Australia's feed wheat supplies to countries such China and Vietnam benefited from rising corn prices as much of the country's 2010/11 crop was downgraded to feed wheat quality following a wet harvest.
Australia's is the world's fourth largest wheat exporter and a dominant player in the Asian market.
"There's a lot of day to day noise so the actual outcome is hard to predict," said David Creed, an agricultural economist at National Australia Bank (NAB).
He added that Australia's feed wheat sales in the Asian region were likely to suffer tough competition if corn prices remained lower.
The USDA said it planned to re-survey farmers in the states of Minnesota, Montana, North Dakota and South Dakota on Aug. 11 which may provide a clearer picture of actual planted acreage.
Grains prices at 0134 GMT Contract Last Change Pct chg Two-day chg MA 30 RSI CBOT wheat 609.00 -5.25 -0.85% -9.68% 739.99 20 CBOT corn 591.00 -29.50 -4.75% -9.15% 696.26 26 CBOT soy 1305.75 11.75 +0.91% -1.30% 1350.90 37 CBOT rice $15.04 $0.19 +1.31% +4.84% $15.27 57 WTI crude $94.80 -$0.62 -0.65% 0.03% $96.69 53 Currencies Euro/dlr $1.449 -$0.002 -0.12% +0.37% USD/AUD
1.069 -0.003 -0.26% +0.09% Most active contracts Wheat, corn and soy US cents/bushel. Rice: USD per hundredweight RSI 14, exponential (Reporting by Bruce Hextall; Editing by Balazs Koranyi)