Palm oil prices have been see-sawing in September, torn between the bleak global economic outlook and prospects of strong demand ahead of key public holidays in top buyers India and China next month.

But on Thursday, traders were certain the market could break below 3,000 ringgit if the broad-based sell-off in global markets continued on economic pessimism.

"Palm oil is finally reacting to a sell-off. The question we should ask is: once the festival season is over, what happens to them?" said a trader with a foreign brokerage in Malaysia.

By midday, benchmark December palm oil on the Bursa Malaysia Derivatives Exchange fell 1.3 percent to 3,026 ringgit ($967.55). It earlier dropped to 3,010 ringgit a tonne -- the lowest since Sept. 14.

Overall volumes were light, with 9,139 lots of 25 tonnes each changing hands, compared to the usual 12,500 lots.

Reuters analyst Wang Tao said palm oil is technically neutral as it is consolidating within a triangle in a range of 3,000 to 3,083 ringgit per tonne.

Palm oil has lost 20 percent so far this year on high stocks and a slowdown in demand after the Muslim Eid festival late in August.

But last minute orders are likely to pour in ahead of India's Diwali festival in late October and China's Golden Week holiday early next month.

India struck deals for 50,000 tonnes of refined, bleached and deodorised palm olein from Indonesia in the last week, traders said, in an immediate reaction to Jakarta's tax cut on exports of processed oils from September 15.

Brent crude lost more than $1 on Thursday on concerns oil consumption may fall, as steps announced by the US Federal Reserve were seen as possibly insufficient to jump-start an economy the central bank said faces significant downside risk.

US soyoil for October delivery fell 0.6 percent in the wake of crude oil's decline. The most active May 2012 soybean oil contract on China's Dalian Exchange lost 1.4 percent.