* 10-yr yields move away from 9 1/2-year low hit Thursday
* 10-yr futures slip after setting intraday record high
By Lisa Twaronite
TOKYO, Dec 7 (Reuters) - Benchmark Japanese government bonds slipped on Friday, as some investors locked in gains after a rally in the previous session on heightened monetary easing expectations sent 10-year yields to a 9 1/2 year low.
Thursday's rally came after Japanese media polls showed the opposition Liberal Democratic Party is on track to secure a majority in Japan's Dec. 16 election. LDP leader Shinzo Abe has called for more aggressive stimulus from the Bank of Japan.
Some strategists and market participants believe the rally could still have room to run.
"There is no real turning point for JGBs yet, even with yields at these levels," said Ayako Sera, a market economist at Sumitomo Trust and Banking.
"It could come from America, if there is progress on resolving the 'fiscal cliff' stalemate and U.S. Treasury yields rise as bonds lose their safe-haven appeal. That could push up Japanese yields, too," she said.
On Thursday, the White House and Republicans in Congress hinted they had resumed low-level private talks on breaking the budget impasse.
Yields on 10-year JGBs rose 2 basis points to 0.705 percent, not far from last Friday's close of 0.70 percent. On Thursday, they fell to 0.685 percent, their lowest level since June 2003. Yields on benchmark cash bonds ended 2011 at 0.980 percent.
Ten-year JGB futures slipped 0.14 point to 145.08, after the contract earlier touched an intraday record high of 145.26. Thursday's close of 145.22 was the highest ever for 10-year futures. The contract gained 0.22 point for the week. The lead futures contract ended 2011 trading at 142.41.
Trade volume was heavy, with 54,567 contracts changing hands, though down from Thursday's 64,642 contracts.
This month's election and political calls for a big supplementary budget will delay the drafting of next fiscal year's state budget until January for the first time in nearly two decades, government sources said.
Many market players expect the BOJ to take easing steps in its next policy meeting on Dec. 19-20. Abe's suggestions included setting an inflation target of 2 percent, embarking on "unlimited easing", and cutting interest rates to zero or below.
"Abe's ideas first led to buying of short- and medium-term JGBs, while the superlongs sold off, but they cheapened to a point where Thursday's sale drew buying interest," said a fixed-income fund manager at a Japanese trust bank.
The 30-year sector bucked the day's trend, faring better after the previous session's auction of that maturity met strong demand.
Yields on 30-year JGBs were flat at 1.890 percent, after earlier dropping as low as 1.875 percent, their lowest level since Sept. 27. On Thursday, 30-year yields fell 5.5 basis points.
The yield curve flattened, pushing the spread between 10- and 30-year yields down to 118.5 basis points from 125.5 points on Tuesday, which was its highest level since early 2008.
The 20-year yield added 1 basis point to 1.650 percent.