Prices had earlier edged up after warnings of heavy rains over a part of palm-producing Borneo signalled tighter supplies of the tropical oil from the world's second-largest producer, prompting investors to book purchases.
"They bought in the morning, but when they saw a lot of players were not there and there was no follow-though buying, they sold it off," said a trader with a local commodities brokerage in Malaysia.
The benchmark March contract on the Bursa Malaysia Derivatives Exchange had edged down 0.04 percent to 2,629 ringgit ($700) per tonne by Monday's close.
Prices had hit a peak of 2,653 ringgit on Friday, the strongest since Dec. 12, in a rebound driven by a weaker ringgit, bargain hunting and worries about supply due to monsoon floods.
Total traded volume stood at a mere 9,980 lots of 25 tonnes compared with the average 35,000 lots as trading slowed to a trickle due to the year-end holidays and small trade movements exaggerated prices.
Malaysia's Meteorological Department has imposed "orange" and "yellow" stage advisories over several parts of Sarawak, warning of heavy intermittent rains until Tuesday that could cause flash floods in low-lying areas.
Sarawak is Malaysia's biggest state located in the Borneo region that churns out about one-sixth of its palm oil production.
Severe floods could disrupt harvesting and transportation of palm fruit in the No.2 producer, further squeezing palm supplies, after output was dented by monsoon rains which displaced about 60,000 people in parts of Peninsular Malaysia in early December.
The Malaysian ringgit, which fell another 0.1 percent against the greenback on Monday, stoked buying interest from overseas buyers and refiners.
The ringgit has lost more than 7 percent so far this year, weakening alongside most emerging Asian currencies which have suffered losses to the dollar with the U.S. Federal Reserve to start tapering its stimulus in January.
Market players will be watching for December's full-month palm oil export data from cargo surveyors to be released on Tuesday.
Palm oil's food and fuel demand is expected to rise into next year on the back of a stronger global economy, analysts say, as well as higher mandatory biodiesel requirements imposed by the world's top producers Indonesia and Malaysia.
Supply of the tropical oil, however, could tighten as production dwindles due to periods of delayed tree stress caused by dry seasons which hit Indonesia in 2012 and 2013.
"We upgraded the Malaysian plantation sector to 'overweight' from 'neutral', as the earnings outlook brightens after two years of contraction," RHB Research Institute analyst Alvin Tai said in a note.
"Our crude palm oil price assumptions for 2014 and 2015 is raised to 2,700 ringgit per tonne and 2,900 ringgit respectively from 2,600 ringgit.
We maintain our price assumption for 2013 at 2,400 ringgit per tonne."
The U.S. soyoil contract for March fell 0.1 percent in late Asian trade. The most active May soybean oil contract on the Dalian Commodities Exchange gained 0.3 percent.
Palm, soy and crude oil prices at 1035 GMT
Palm oil prices in Malaysian ringgit per tonne
CBOT soy oil in U.S. cents per pound
Dalian soy oil and RBD palm olein in Chinese yuan per tonne
Crude in U.S. dollars per barrel
