Shorter term JGBs erase losses on BOJ easing hopes

* Investors await BOJ meeting end on Tues for possible easing

* Easing would support short-, medium-termed zones -strategist

* Ten-yr futures close flat, above Ichimoku cloud

By Lisa Twaronite

TOKYO, Feb 13 (Reuters) - Short- and medium-term bonds were supported by hopes the Bank of Japan would expand its asset-buying programme at a meeting this week, while longer maturities edged lower after Greece passed an austerity package.

The BOJ will conclude its two-day policy meeting on Tuesday, with some saying it may expand its 55 trillion yen ($715 billion) liquidity-boosting programme by increasing the 20 trillion yen asset-buying portion, mostly by purchasing more JGBs.

"If the Bank of Japan takes some sort of action, that would be positive for the short- and medium-term zones," said Satoshi Yamada, chief quantitative analyst at SMBC Nikko Securities.

"It's hard to see more adjustment in the 10- and 20-year tenors after they found support at yields of 1 percent and 1.75 percent (respectively)," he added.

The 10-year yield edged up half a basis point to 0.980 pct . The 20-year yield was flat at 1.740 pct after earlier rising to 1.745 percent.

The 30-year bond yield added a basis point and a half to 1.940 percent, bringing the spread between five and 30-year yields to 160 basis points, the highest since mid-December.

"The market basically does not expect further easing tomorrow, but the possibility does exist and is being widely reported by media, which is supporting prices at the shorter end of the curve," said a fund manager at a life insurance company.

Some strategists believe that instead of easing, it is more likely the central bank could tweak its wording to clarify that it will aim to achieve consumer inflation of 1 percent, or signal that a major revision to its price commitment is under way, analysts say.

On the supply side, a few money managers at a trust bank and a regional bank said they expect Thursday's auction of 5-year JGBs to go smoothly, as long as yields are slightly above 3-month Tibor at 0.33 percent, which is the main funding cost for megabanks.

SENTIMENT IMPROVES

A weekly Reuters survey showed on Monday that JGB market sentiment has improved as players expect a recent rally in share prices to run out of steam and on chances of more BOJ easing. Most respondents replied before news of the Greek vote.

The latest poll's JGB bull-bear diffusion index, calculated by subtracting the number of bearish market players from those that are bullish, turned positive for the first time in two weeks, rising to plus 6.

Ten-year JGB futures closed flat at 142.37, above the top of the daily Ichimoku cloud at 142.33, after earlier sinking as low as 142.28. Support was cited at the cloud bottom at 142.18 and then at the Jan. 24 low of 142.10.

GDP data showed a bigger-than-expected decline, with Japan's economy shrinking 0.6 percent in October-December from the previous quarter on the global economic slowdown, Thai floods and a strong yen.

The decline was bigger than economists' median forecast for a 0.3 percent contraction, and followed a revised 1.7 percent expansion in July-September. It translated into an annualised contraction of 2.3 percent, against a 1.4 percent annualised decline expected by economists.

Earlier in the session, bonds came under pressure after Greece's parliament approved a deeply unpopular austerity bill, even as protests and civil unrest spread across the country ahead of the vote. That cleared the way for that country to secure another round of bailout funds needed to avoid default.

"Stocks showed a clear reaction to the Greek news and JGBs initially took their cue from that, but the impact faded," said Keiko Onogi, senior JGB strategist at Daiwa Securities.

JGB sensitivity to share prices picked up last week as the Nikkei recovered the 9,000 level, according to strategists at Barclay's Capital.

The equities/JGB correlation underwent a correction after the Fed extended its commitment to low interest rates, causing a downshift in U.S. Treasury yields that put downward pressure on JGB yields, but the link with equities has now begun to recover again, they said.

U.S. Treasuries dropped after the Greek news, which added to pressure on JGBs earlier in the session.