GRAINS-Soybeans sink on larger-than-expected supply outlook

* Outlook for tighter U.S. supply, strong demand boost soy

* China soy imports fall in February

* Wheat retreats after rally on Thursday

(Updates with USDA data) CHICAGO, March 8 (Reuters) - U.S. soybean futures tumbled on Friday after the U.S. government issued larger-than-expected supply forecasts. The U.S. Department of Agriculture, in a monthly crop report, left its forecast for domestic soybean inventories unchanged at 125 million bushels. Analysts had expected USDA to drop the estimate 4 percent due to strong export demand. The government also kept its estimate for Brazil's soybean harvest steady at 83.5 million tonnes, while analysts were looking for a slight decline. "Beans got the worst end of the deal from the standpoint of South America supplies, the Brazilian production number, and U.S. stocks not being changed," said Mike Zuzolo, president of Global Commodity Analytics & Consulting. The larger-than-expected supply estimates pressured the soy market following gains earlier in the session. Chicago Board of Trade most-active May soybeans sank 0.8 percent to $14.62-1/2 a bushel by 11:40 CST (1740 GMT). Demand for soybeans has been shifting to the United States from Brazil as port delays have slowed the flow of soybeans from South America. Soybeans from new crops in Brazil and Argentina are urgently needed to replenish tight global supplies after the worst U.S. drought in 50 years reduced last year's U.S. harvest. However, USDA said U.S. exports are set to decline in the coming months as competition from South America heats up.

DEMAND FLOW In the near term, the flow of soybeans from South America could slow even further as Brazilian dock workers are planning a 24-hour nationwide strike on March 19, traders said.

"Logistics continue to plague Brazil's export program," said Karl Setzer, grain solutions team leader for MaxYield Cooperative. China, the world's biggest soy buyer, imported 2.9 million tonnes of the oilseed in February, down 24.3 percent from a year earlier, figures from the General Administration of Customs of China showed. The decline last month indicates that China will need to accelerate its purchases in the coming months to replenish its supplies, according to analysts at Germany's Commerzbank.

UNCHANGED CORN VIEW The USDA left its estimate for U.S. corn inventories unchanged from last month at 632 million bushels, surprising analysts who had expected a 1.7 percent increase. The government cut its estimate for corn exports due to sluggish sales but increased its estimate for imports. CBOT May corn rose 0.7 percent to $6.96-1/4 a bushel. "This report confirms that supplies remain tight on corn," said Don Roose, president of U.S. Commodities. The forecast for U.S. wheat supplies rose more than expected to 716 million bushels from 691 million last month. CBOT May wheat slipped 0.5 percent to $6.91-3/4 a bushel.

Prices at 11:34 a.m. CST (1734 GMT)

LAST NET PCT YTD CHG CHG CHG CBOT corn 715.75 4.25 0.6% 2.5% CBOT soy 1497.50 -6.00 -0.4% 5.6% CBOT meal 433.70 -2.30 -0.5% 3.1% CBOT soyoil 49.75 -0.65 -1.3% 1.2% CBOT wheat 679.50 -7.25 -1.1% -12.7% CBOT rice .00 0.00 0.0% -100.0% EU wheat 234.00 -4.25 -1.8% -6.5%US crude 91.16 -0.4 -0.4% -0.7% Dow Jones 14,353 24 0.2% 9.5% Gold 1577.14 -1.26 -0.1% -5.8% Euro/dollar 1.2968 -0.0136 -1.0% -1.7% Dollar Index 82.8300 0.7490 0.9% 3.8% Baltic Freight 843 9 1.1% 20.6% * All grain and oilseed prices for second position. Paris

futures prices in Euros per tonne, London wheat in pounds per tonne and CBOT in cents per bushel.

(Additional reporting by Karl Plume and Julie Ingwersen; Editing by Keiron Henderson, Jim Marshall and Gunna Dickson)