Wheat markets raced to fresh highs on Thursday, with Chicago wheat trading limit-up, as Russia announced a halt to grain exports from next week in response to a drought that has withered crops.

Russia's worst drought on record has devastated crops in parts of the country and sent international grain prices soaring as markets have speculated on restricted supply from one of the world's leading exporters.

Prime Minister Vladimir Putin told a government meeting on Thursday that a temporary ban on grain exports was needed, with a spokesman later saying this would come into force from August 15 and would apply to contracts that had been already signed.

The announcement followed feverish speculation about possible export curbs, which was fueled by a report from Russian news agency Interfax earlier on Thursday that a ban on grain exports could be implemented as soon as next week.

September wheat on the Chicago Board of Trade rose by a limit-up 60 cents to $7.85-3/4 by the close of the electronic session, a high for the contract and a 23-month high for front-month prices.

The benchmark November milling wheat contract on Euronext reached a high of 233.00 euros, the latest in a series of contract highs set during Thursday's session. By 1227 GMT it was trading up 21.25 euros, or 10.17 percent, at 230.25 euros.

Benchmark wheat prices in Chicago and Paris have now added 69 percent and 58 percent respectively since the start of July.

The prospect of export curbs in Russia has lifted markets by making world supply tighter and offering 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. The implications would be huge.

But the details of the export ban were unclear, with some traders saying there would normally be a 30-day notice period before the ban was decreed.

Nervousness in wheat markets was also being fed by worries that the continuation of drought conditions in Russia 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 tonnes from its last 2010 global wheat estimate, which was released in June before the drought gripped Russia.

But one French trader warned that the price rally might be overdone in what hhe said had become a financial players' market.

A (Chicago) market that gains $1 in four days is not a fundamental one, he said. The pullback if it happens will be all the more severe.

(With reporting by Martin Roberts in Madrid and Michael Hogan in Hamburg)

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