JGBs climb due to yen's surge, Nikkei slide

* Five-year JGB yield hits four-year low

* Lead 10-year futures hit nine-month high

By Masayuki Kitano

TOKYO, Nov 27 (Reuters) - The five-year Japanese government bond yield hit its lowest in four years on Friday as Tokyo shares slid, and investors fretted that the yen's surge may add to deflationary pressure on the economy.

Ten-year JGB futures climbed to their highest in nine months and the benchmark 10-year yield hit a seven-week low, taking cues from the yen's jump to a 14-year high against the dollar JPY= and the Nikkei's .N225 slump to a four-month low.

Market players are focusing on the possibility that the government's recent declaration that the economy is back in deflation may lead to pressure on the Bank of Japan to adopt further monetary easing steps, said Mari Iwashita, chief market economist for Nikko Cordial Securities. "Taking all that together, when you think about whether to buy or sell bonds, the only thing to do is to buy," Iwashita said.

December 10-year JGB futures rose 0.21 point to 139.71 2JGBv1, having trimmed some gains after hitting a high of 139.91 earlier, the highest for a lead futures contract since late February.

The five-year JGB yield dropped 2.5 basis points to 0.545 percent JP5YTN=JBTC, the lowest since September 2005.

The benchmark 10-year JGB yield fell 2 basis points to 1.260 percent JP10YTN=JBTC. Earlier, it hit a seven-week low of 1.255 percent.

In the stock market, the Nikkei share average fell more than 2 percent at one point, after the dollar sank to a 14-year low against the yen and debt problems in Dubai hit European shares the previous day. [ID:nGEE5AO2FN] [.T]

Dubai had said on Wednesday that two of its flagship firms planned to delay repayment on billions of dollars of debt as a first step towards restructuring Dubai World, the conglomerate that spearheaded the emirate's breakneck growth.

"People do not have a grasp of the entire picture yet and that is leading to anxiety," said a fund manager at a Japanese asset management firm.

"Until the overall picture becomes clearer, money will probably tend to head toward bonds," the fund manager said. (Editing by Hugh Lawson) ((masayuki.kitano@thomsonreuters.com; Reuters Messaging: masayuki.kitano.reuters.com@reuters.net; +81-3-6441-1872)) ((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com))