JGBs tumble as Treasury drop hits supply-wary mkt

* Futures drop over one point to 6-½ month low

* Midterm JGBs underperform on heavy selling by banks

* 5-yr/20-yr yield spread tightens, curve could bear flatten

By Shinichi Saoshiro and Chikafumi Hodo

TOKYO, Dec 8 (Reuters) - Japanese government bonds tumbled on Wednesday, with futures falling a full point as a big slide in U.S. Treasuries hit a market bruised after a weak 30-year auction and wary ahead a five-year sale.

The sharp drop in Treasuries, after a proposed extension of tax cuts boosted economic optimism while stirring concerns over inflation and the massive debt burden in the United States, hit a JGB market short on confidence after the previous day's tepid 30-year offering.

The decline in Treasuries sparked a sell-off of midterm JGBs by domestic banks, recently seen selling longer-dated debt to help offset losses from foreign bond holdings.

"The United States is now being associated with a debt burden as well, while gains in stocks diminish hopes for extra monetary easing. Government debt does not look good under such conditions and investors are dumping it," said a fund manager at a domestic asset management firm.

Fading prospects for further Bank of Japan easing could reverse the recent steepening of the yield curve by initiating a bear flattening phase, analysts said.

Bear flattening occurs when shorter dated debt yields rise faster than those on longer dated debt.

The five-year/20-year yield spread tightened by 4 basis points to 159 basis points, pulling away from Tuesday's 6-½ month peak of 163 basis points.

December 10-year futures 2JGBv1 fell 1.11 point to 140.10 after going as low as 140.07, a 6-½ month trough.

Sellers of futures included foreign funds buying stock futures at the same time, momentum following funds and dealers selling to hedge for the five-year auction on Thursday, traders said.

"Domestic institutional investors, who were looking for bargain-hunting opportunities, are taking a wait-and-see stance as falls in JGB prices were a bit too rapid," said Masaru Hamasaki, a senior strategist at Toyota Asset Management.

"Today's rapid selling in JGBs is a bit overdone. But at the same time, there are very few buyers now."

Japan's Ministry of Finance will sell 20-year debt next week in addition to the five-year offering on Thursday.

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JGBs slip as Nikkei surge knocks wind out of rally

* Benchmark yield rises to a 5-month high of 1.200 pct

* Futures hit as CTA selling re-emerges

* Superlongs slip on pre-auction selling

By Shinichi Saoshiro

TOKYO, Dec 2 (Reuters) - Japanese government bonds slid on Thursday, giving back a swathe of gains from the previous day's rally as Tokyo stocks climbed to a fresh five-month high and dulled the appeal of debt.

A slide by U.S. Treasuries in the wake of sturdy economic data also weighed on JGBs, helping force the benchmark yield to a five-month high of 1.200 percent a day after bonds surged in relief over the success of a 10-year auction.

December 10-year futures 2JGBv1 fell 0.39 point to 140.94 after rising nearly half a point the previous day as speculators including commodity trading advisers (CTAs) resumed selling, dealers said.

"I thought the market had found a foothold after yesterday's auction, but it has surrendered gains without much of a fight today," said a fund manager at a domestic asset management firm.

"It underscores soft sentiment as stocks show unexpected resiliency. Investors are willing to bargain-hunt when given the chance but they won't chase yields much lower. The benchmark's 1.200 percent level could become just a passing point, not a barrier."

Others, however, said the bear market could be mostly over with the 10-year yield having risen nearly 30 basis points over the past month.

"The market retreat looks to have mostly run its course with risk reduction by investors going on a lower boil," said Akito Fukunaga, chief fixed-income strategist at RBS Securities in Tokyo.

The 10-year yield JP10YTN=JBTC climbed to a five-month high of 1.200 percent, although bargain-hunting by investors such as regional banks who were late in catching the previous day's post-auction surge helped keep it below that level for now.

The short-end suffered the least losses with the two-year yield JP2YTN=JBTC edging up 0.5 basis point to 0.185 percent. The yield has pulled back from a one-year high of 0.210 percent hit early this week.

Expectations for further central bank easing has ebbed now that the Nikkei share average .N225 has recovered from lows seen in early November and the yen has retreated, driving up two- and five-year yields in the past two months. But market participants said the yield rise also looked like it had gone too far.

Superlongs, on the other hand, sagged on dealers selling to make room for next week's 20-year auction and curve players unwinding flattening positions, traders said.

The 20-year yield JP20YTN=JBTC climbed 3 basis points to 1.995 percent after rising to 2.000 percent, a new 5-½ month high.

The Nikkei .N225 gained 1.8 percent following a surge on Wall Street with talk of bold steps to resolve the euro zone's debt crisis warming investor appetite for riskier assets. 

In focus is the European Central Bank meeting later on Thursday and whether the central bank drops any hints towards expanding its bond buying, further easing concerns towards the euro zone debt crisis. (Editing by Michael Watson).reuters.com

READ MORE - JGBs slip as Nikkei surge knocks wind out of rally