JGB futures advance to 5-month high as Nikkei slips

* Futures buoyed by fast money accounts, lead market higher

* Futures above 139.00 for first time since late March

* 2-yr/20-yr yield spread tightens by 5 bps to 183.5 bps

By Shinichi Saoshiro

TOKYO, Aug 21 (Reuters) - Japanese government bonds advanced on Friday, led by bond futures which hit a five-month high, as Tokyo's Nikkei stock average .N225 fell 1.4 percent, increasing the appeal of safe haven debt.

JGBs have advanced this week with the benchmark 10-year yield hitting one-month lows as the Nikkei has been repeatedly hit by downturns in Chinese stocks. China is being eyed to help haul the rest of the region out of a global recession.

Although Shanghai stocks .SSEC eked out gains on Friday, Tokyo shares hit the day's lows on renewed attention to China's bank capital rules, which clouded prospects for stock markets in the country. [ID:nSHA168045]

September 10-year JGB futures 2JGBv1 hit a five-month high of 139.36 as the Nikkei slumped to the day's low. Futures ended the day gaining of 0.45 point to 139.20, nudged off highs as the Nikkei trimmed losses.

Bond futures have benefited from buying by fast money accounts trading futures against a variety of other assets such as equities and commodities.

"Recent market gains have been led by futures, which are being driven by speculative accounts trading on short term factors," said Shinji Nomura, chief market analyst at Daiwa Securities SMBC.

"Futures could easily lose momentum once the players involved begin looking beyond the regional theme for other factors to trade on," Nomura said.

Futures were lifted on Friday by trend following commodity trading advisers but tempered by profit taking from other fast money accounts including hedge funds, market players said.

In the cash market, 10-year JGBs outperformed other maturities through much of the day, helped by purchases from investors like domestic pension funds, which saw the 10-years as a bargain after the recent steepening of five-year/10-year and seven-year/10-year yield spreads.

The five-year/10-year yield spread neared 70 basis points on Wednesday, its steepest in a week. It flattened to 67.5 basis points on Friday.

"Comments from Bank of Japan's Mizuno yesterday are also giving the market underlying support after JGBs withstood a jump by stocks relatively well yesterday," said Akihito Fukunaga, a fixed-income strategist at Credit Suisse.

BOJ policy board member Atsushi Mizuno warned on Thursday that whether Japan's economic recovery will continue remained highly uncertain and that the central bank had no effective ways to quickly counter deflation, suggesting a departure from unconventional monetary policy would not come anytime soon. [ID:nT169364]

The 20-year yield fell 4 basis points to 2.085 percent.

The benchmark 10-year yield declined by 3.5 basis points to 1.305 percent JP10YTN=JBTC after hitting 1.300 percent, its lowest since mid-July.

The five-year yield dropped 2 basis points to 0.630 percent JP5YTN=JBTC, while the two-year yield JP2YTN=JBTC edged up 1 basis point to 0.250 percent.

The two-year/20-year yield spread tightened by 5 basis points to 183.5 basis points. It struck a four-year high of 191.5 basis points on Aug. 10, according to Reuters data.

The Nikkei shed 1.4 percent, failing to draw support from gains on Wall Street. [.T] (Reporting by Shinichi Saoshiro; Editing by Joseph Radford)