JGB futures slip as stocks up, but trade data helps

* Higher stocks, U.S. mortgage firm rescue plan hurt JGBs

* JGB losses trimmed on unexpected fall in Japan's exports

* MOF's 20-year auction seen drawing fair demand

By Rika Otsuka

TOKYO, July 24 (Reuters) - Japanese government bonds slid for a third straight day on Thursday as oil's retreat from record highs boosted share prices, prompting investors to shift funds to equities from government debt.

Optimism about a rescue plan for ailing U.S. mortgage finance companies Fannie Mae FNM.N and Freddie Mac FRE.N helped ease jitters about the U.S. financial sector, reducing safe-haven bids for U.S. and Japanese government bonds.

But the JGB market trimmed early losses after Japan's exports unexpectedly fell in June for the first time in nearly five years. [JP/TRADE1].

Thursday's data raised concerns about profits at Japanese exporters, which have driven economic growth.

"The trade data certainly is a supportive factor for JGBs," said Tetsuya Miura, a bond strategist at Shinko Securities.

"Economic fundamentals would not support a further rise in JGB yields if the economy can no longer rely on exports," Miura said.

Adding to pessimism, Bank of Japan Policy Board member Atsushi Mizuno said on Thursday that the fog hanging over Japan's economy was unlikely to clear any time soon. [ID:nTKU003432]

Mizuno, considered one of the most hawkish members of the central bank's board, shocked investors by saying Japan's core consumer price inflation rate is seen rising to around 2.5 percent this autumn. But he balanced his comments by also expressing concerns over downside risks to consumption due to rising prices.

"On the whole his remarks were more dovish than expected," said Atsushi Ito, a JGB strategist at Morgan Stanley. "They did not give an impression that Mizuno thinks the central bank needs to raise interest rates soon."

The BOJ left interest rates unchanged at 0.5 percent last week as it has felt that risks to growth are more of a threat than the pickup in core inflation to a decade high.

Swap contracts on the overnight call rate are pricing in a roughly 60 percent chance of a quarter-point hike before the fiscal year ends next March JPONIBOJ=TRDT.

September 10-year futures 2JGBv1 were down 0.26 point at 135.24 after falling as low as 135.15 in early trade. The lead contract has dropped since hitting a two-month high of 136.79 last week.

The benchmark 10-year yield JP10YTN=JBTC rose 3 basis points to 1.670 percent, having climbed from a three-month trough of 1.530 percent last week.

Activity was subdued as investors were cautious ahead of the Ministry of Finance's 800 billion yen ($7.4 billion) auction of 20-year bonds later in the day.

Thursday's debt sale is expected to attract fair demand after last week's auction of 30-year paper went smoothly and showed solid demand for longer-dated bonds. Analysts said the steepening of the yield curve in the past month should encourage investors such as life insurers and pension funds to buy the 20-year bonds.

The coupon was set at 2.3 percent, down 0.1 percent from the previous two auctions in the same maturity.

The yield on the current No. 102 20-year bond was up 1.5 basis points at 2.270 percent JP20YTN=JBTC after hitting a one-month high of 2.275 percent in early trade.

The Nikkei share average .N225 was up 1.3 percent by midday, led higher by banks and carmakers. [.T] ($1=107.93 Yen) (Editing by Michael Watson)