GRAINS-Winter wheat hits four-month peak as crop conditions drop

* Winter wheat conditions decline, Plains get biggest drop

* Poor South American weather underpins corn, soybeans (Recasts throughout; adds analyst comment, updates prices, changes dateline previous HAMBURG)

CHICAGO, Jan 30 (Reuters) - U.S. winter wheat futures surged to the highest level in at least four months on Tuesday, led by a more than 3 percent rally in hard red winter wheat, after the government slashed condition ratings for the drought-hit U.S. Plains crop.

Soybeans and corn also advanced on technical buying and short covering amid concerns that poor weather in South America could trim production in major exporters Argentina and Brazil.

Commodity funds hold a sizable net short position in grain futures, leaving markets vulnerable to short-covering rallies.

"Most of the strength is from the wheat pit, particularly Kansas City (HRW wheat), due to the monthly condition reports which showed horrible conditions in the hard red winter wheat belt," said A/C Trading President Jim Gerlach.

Condition ratings of U.S. winter wheat declined in January in several southern U.S. Plains states hit by drought, including top U.S. producer Kansas, the U.S. Department of Agriculture (USDA) said on Monday.

K.C. March HRW wheat surged 15 cents, or 3.3 percent, to $4.68 a bushel by 12:18 p.m. CST (1818 GMT), the contract's highest level since Sept. 29 and strongest percentage gain since July 3.

Chicago Board of Trade March soft red winter wheat gained 5-3/4 cents to $4.55 a bushel. It was the highest price for the market's most actively traded contract in four months.

Concerns about dry weather in Argentina and ill-timed rains in Brazil, where farmers are trying to harvest soybeans and plant winter corn, fueled gains in corn and soybeans. Brazil is the world's top soybean exporter and No. 2 corn supplier, while Argentina leads the globe in soymeal and soyoil exports.

Argentina's corn crop area may contract and yields are likely to drop due to drought, a top Agriculture Ministry official said.

Below-normal rainfall and above-normal temperatures are expected for Argentina and southern Brazil over the next 10 days, Radiant Solutions Meteorologist Kyle Tapley said in a note to clients.

Meanwhile, recent rain in some areas of Brazil has slowed soybean harvesting and could delay planting of winter corn.

Rising export demand also supported corn after the USDA confirmed a fifth large export sale in six days via its daily sales reporting system.

CBOT March corn rose 2-1/4 cents to $3.61 a bushel after hitting a five-month peak of $3.62-1/4. CBOT March soybeans were up 8 cents at $9.99-1/2 after touching a 6-1/2-week high earlier in the session. (Additional reporting by Michael Hogan in Hamburg; Editing by David Goodman and Matthew Lewis)