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GRAINS-Soybeans rise as USDA report looms, soyoil rallies

* Soyoil futures post strongest gain in 1-1/2 weeks

* Grains lifted by short covering, but corn gains fade (Updates with soyoil gains supporting soybeans and corn turning lower, adds closing prices)

CHICAGO, Nov 6 (Reuters) - U.S. soybean futures rose on Monday for the third time in four sessions on expectations that the government will cut its U.S. crop yield estimate in a monthly report this week and as soyoil prices rallied along with rising energy markets.

Soyoil futures posted their strongest gains in 1-1/2 weeks as oil prices surged to two-year highs following an anti-corruption crackdown in Saudi Arabia.

Corn futures erased earlier short-covering gains and ended slightly lower on ample supplies from a bumper U.S. harvest. Wheat settled higher, lifted by technical buying and fund short covering.

Traders focused on the U.S. Agriculture Department's monthly crop supply and demand report scheduled for release on Thursday. Analysts, on average, expect the government to raise its U.S. corn yield forecast and trim its soybean yield outlook.

"The soy complex is rallying on expectations the USDA will lower U.S. soybean yield on Thursday," said Terry Reilly, senior commodities analyst with Futures International.

Forecasts for rains in dry areas of Brazil eased some concerns about delayed plantings in the world's largest soybean-exporting country.

Brazilian soybean planting has been lagging the normal pace because of heavy early season rains in central and southern areas and dry conditions in top soy state Mato Grosso.

Chicago Board of Trade January soybeans gained 7-1/4 cents, or 0.7 percent, to $9.94 a bushel.

CBOT December corn dropped 1/4 cent to $3.48 a bushel, while CBOT December wheat added 5 cents to $4.30-3/4 a bushel.

Commodity Futures Trading Commission data late last week showed non-commercial traders widened their net short holdings in the week ended Oct. 31 to the largest level since June and increased their corn net short position to the biggest since March 2016.

Export sales announcements offered underlying support to both markets after the USDA confirmed a 130,000-tonne corn sale on Monday and Iraq's government confirmed it bought 500,000 tonnes of U.S. hard red winter wheat. (Reporting by Karl Plume in Chicago; Editing by James Dalgleish and Peter Cooney)