PARIS, Feb 3 (Reuters) - European wheat futures sank to fresh contract lows on Wednesday as traders reacted cautiously to a move by Egypt to resolve a standoff over import terms, and a jump in the euro underlined a tough export outlook.

Egypt said it would accept imports with up to 0.05 percent of grain fungus ergot, reversing a recent zero-tolerance policy that prompted traders to boycott a tender a day earlier.

Egypt's announcement spurred a brief bounce in Euronext futures but prices then resumed their downward trend as traders said the situation in Egypt remained unclear.

"While Egypt seems to have got the message about its tender terms, there is still a major issue with payment delays and suppliers now have serious doubts about the capacity of the world's biggest wheat buyer to fulfill its contracts," one trader said.

Some traders were still cautious about the ergot policy in view of recent wrangling and the fact a cargo of French wheat was still being refused in Egypt due to traces of the fungus.

"The news about Egypt's import regulations was positive today but people will be awaiting formal confirmation of a tolerance level for ergot before reacting as there have been so much uncertainty about the policy of the different ministries in past weeks," another trader said.

Euronext March wheat fell to a new contract low of 158.50 euros a tonne, before settling down 0.75 euro at 159.25 euros to breach the psychological support level of 160 euros.

French wheat was expected to secure new export sales in a tender held by Algeria on Tuesday, but the low prices reported by traders also dampened sentiment.

The volume purchased by Algeria, which does not disclose details of its grain tenders, was still unclear but there was a consensus among traders that it paid around $178-179 a tonne, cost and freight included.

A sharp rally in the euro, which surged to its highest in more than three months against the dollar, also weighed on sentiment by making export origins such as French and German wheat less competitive overseas.

French port data, however, showed a rare cargo for Thailand was due to start loading this week, a sign that low grain prices and freight prices were allowing exporters to attract some demand from far-away destinations.

German cash premiums in Hamburg were marked down in response to the weaker Paris market.

Standard wheat with 12 percent protein content for February delivery was offered for sale at 2 euros under the Paris March contract against 1.5 euros under on Tuesday. Buyers were offering 3 euros under Paris against 2 euros under on Tuesday.

(Reporting by Valerie Parent and Gus Trompiz in Paris and Michael Hogan in Hamburg; Editing by Mark Potter) ((gus.trompiz@thomsonreuters.com; +33 1 49 49 52 18; Reuters Messaging: gus.trompiz.thomsonreuters.com@reuters.net))

Keywords: EUROPE GRAINS/