JGBs edge up after stronger yen hurts stocks

TOKYO, Sept 14 (Reuters) - Japanese government bonds edged up on Monday after the yen's broad surge sent Tokyo shares down more than 2 percent.

* Ten-year JGB futures initially slipped as some investors locked in recent gains and amid caution before a 20-year auction this week, dealers said. But futures soon reversed losses as investor profit-taking ebbed and stocks extended losses, they said.

* Market sentiment was also helped by the view that players will reinvest their funds as there are a large amount of redemptions in September.

* "The market environment is favourable. There are redemptions this month, the Bank of Japan will likely keep interest rates low and recent economic figures failed to give us confidence in the Japanese economy," said Satoshi Yamada, general manager at Okasan Asset Management.

* "But investors are also staying cautious over higher JGB prices as well as before the 20-year auction," he said.

* December 10-year JGB futures 2JGBv1 edged up 0.06 point to 139.21. The benchmark 10-year yield JP10YTN=JBTC slipped 0.5 basis point to 1.295 percent.

* The five-year yield JP5YTN=JBTC was down 0.5 basis point at 0.570 percent, a level not seen since September 2005. The 20-year yield JP20YTN=JBTC fell 2 basis points to 2.025 percent.

* The yield curve through the 20-years flattened slightly. The five-year/20-year yield spread tightened by 1.5 basis point to 145.5 basis points.

* Tokyo's Nikkei stock average .N225 fell 2.5 percent as exporters were hurt by the yen's advance to a fresh seven-month peak against the dollar. [.T] [FRX/]

* The Ministry of Finance will offer 1.1 trillion yen ($12 billion) worth of 20-year JGBs on Tuesday. The market was also awaiting the Bank of Japan's two-day policy meeting starting on Wednesday.

* U.S. Treasuries rallied on Friday, ending another strong week underpinned by nagging doubts over a sustained U.S. economic recovery and a general view of low inflation. [US/] (Reporting by Kaori Kaneko; Editing by Chris Gallagher)