GRAINS-Wheat, soy drop in technical sell-off after USDA report

* USDA cools wheat, soy markets with higher U.S. stocks

* USDA report takes focus away from U.S., Argentine weather

* Corn holds near 7-month high after U.S. stocks cut (Updates prices, adds comments; changes byline, dateline, previously PARIS/SINGAPORE)

CHICAGO, March 9 (Reuters) - Chicago wheat and soybean futures fell sharply on Friday in a technical sell-off following U.S. government data on Thursday that raised the outlook for end-of-season stockpiles of the crops, traders said.

Wheat and soy each dropped 2 percent or more while corn futures were down about 0.8 percent, holding near Thursday's seven-month high on the Chicago Board of Trade.

Forecasts for small amounts of rain in Argentina added to bearish sentiment even as the precipitation might be too late to help some soy and corn fields in the South American nation. Dry conditions in Argentina and in the southern U.S. Plains winter wheat belt helped propel prices for all three commodities to multimonth highs this month.

"Its gravity," said independent wheat trader Austin Damiani. "We've absorbed a huge amount of speculative buying over the past couple weeks, so the market is retracing. We're still far away from (wheat export) demand."

CBOT May wheat was down 11-3/4 cents to $4.87-1/2 per bushel, a 1-1/2 week low.

CBOT May soybeans fell 21-1/4 cents to $10.42-3/4 per bushel and CBOT May corn eased 3-1/4 cents to $3.90-1/4 as of 12:32 p.m. CST (1832 GMT).

The U.S. Department of Agriculture in a monthly supply and demand report on Thursday cut projected U.S. corn stocks by more than expected on the back of healthy exports and ethanol demand.

The USDA raised its outlook for global wheat inventory at the end of 2017/18 to a new record. High world supplies were countering support from drought in parts of the Plains.

"People are digesting the USDA report," Alexandre Boy of consultancy Agritel said. "There weren't a lot of surprises in wheat but it was slightly bearish with the increase in Russian exports that transferred extra stocks to the U.S. and EU."

The USDA data also dampened the soybean market as an upward revision to U.S. stocks, reflecting, as in wheat, a reduction in U.S. exports. That took the focus away from a sharp cut to forecast soybean production in drought-hit Argentina. (Additional reporting by Naveen Thukral in Singapore and Gus Trompiz in Paris Editing by Tom Brown)