WINNIPEG, Manitoba (Reuters) - Chicago wheat futures soared on Thursday, settling up the permitted daily maximum for the first time in two years after No. 3 exporter Russia said it would temporarily halt grain shipments.

Russia’s worst drought on record has devastated crops in parts of the country and caused international grain prices to spike as markets placed bets that without shipments from one of the world’s leading exporters, global supplies would be restricted.

Chicago Board of Trade soft red winter wheat has risen seven of the past eight days and buying by funds and traders initially spilled across the grain markets. Corn and soybeans pared most of their gains to end up 0.8 and 0.2 percent respectively.

The benchmark contract finished up 8.3 percent, the biggest daily percentage gain in three weeks, and has gained 82 percent since the prices bottomed on June 9 at $4.25-1/2 per bushel.

Prime Minister Vladimir Putin signed an order banning grain and flour exports from August 15 to December 31, with a spokesman saying this would apply to contracts that had been already signed. The news confirmed an earlier report from Interfax that kicked off the buying.

“Putin’s announcement has everyone in a panic. It’s money chasing money, and who knows how high we could go,” said Paul Haugens, vice-president for Newedge USA.

September wheat’s 60-cent gain at $7.85-3/4 per bushel was the first limit-up settlement and the highest front month price since August 2008.

“This is very much the old axiom ‘buy the rumor sell the fact,’ because we’ve been talking this exact situation for days and weeks and we had the fact announced that Russia is going to cancel exports,” said Don Roose, analyst with U.S. Commodities. “Now do we carry on, or is that the beginning of the end?”

Kazakhstan, another key Black Sea wheat grower that is expecting a 35 percent drop in the grain harvest, said on Thursday it will consider a request by Russia to curb exports at a meeting later this month.

Such grain trade barriers will distort global wheat markets, global grain-handling giant Cargill Ltd CARGIL.UL said.

The Canadian Wheat Board, a major grain marketer and hedger of spring wheat on the Minneapolis Grain Exchange, said Russian drought alone isn’t enough to sustain current wheat prices, but said that funds could bid wheat beyond levels that global fundamentals support.

Record spring rains in Western Canada have contributed to fears of a global shortage. The Wheat Board expects Canada to produce its smallest wheat crop in three years.

The International Grains Council said last week it expects global wheat production of 651 million tons, well below the prior season but still the third-biggest crop on record. It projected Russian production at 50 million tons, or nearly 8 percent of the world wheat harvest.

Benchmark November milling wheat futures on Euronext extended a string of contract highs, before falling back to 223.25 euros, a 6.8 percent gain.

The run up has not yet brought prices close to the highs of the 2008 wheat rally, when nearby Chicago prices spiked to $13.34-1/2 per bushel and fears of a global food crisis were rampant. Some analysts have said wheat’s current rally is overdone with global supplies ample after two years of record crops.

“I wouldn’t be surprised if they tack on another 60-70 cents or more in the next session,” said Joe Bedore, CBOT floor manager for trading house FC Stone in Chicago. “The export ban is now official. And that’s the ultimate bullish fact here.”

A Reuters poll on Thursday forecast a Russian wheat crop of 46.5 million tons this year, a fall of about one-quarter compared with 2009. [ID:nLDE67314O] Informa Economics pegged the crop at 49 million tons.

Without Russian wheat, the prospects of tighter world supplies offer opportunities to other major exporters including the United States and European Union.

“An export stop by Russia would mean the cards are reshuffled in the international wheat market,” one European trader said.

“It would open up huge new opportunities for west European and U.S. sales.”

Markets were also nervous that the continuation of Russia’s drought conditions would disrupt the forthcoming sowing season for winter crops, a point made on Wednesday by both the UN’s Food and Agriculture Organization and the head of the Institute for Agricultural Market Studies (IKAR) analysts.

The FAO cut 25 million tons from its last 2010 global wheat estimate, which was released in June before the drought set in.