JGBs edge lower on caution before 10-yr auction

*JGBs weighed by position adjustments for 10-year auction

*U.S. jobless data, ECB meeting also cap bonds

*Losses limited by bearish stocks, Nikkei down 0.5%

By Shinichi Saoshiro

TOKYO, July 3 (Reuters) - Japanese government bonds edged lower on Thursday as caution prevailed before a key auction and potential market-moving events later in the day.

Bond dealers are bracing for a 1.9 trillion yen ($17.95 billion) auction of 10-year paper, with results due at 0345 GMT.

U.S. non-farm payrolls data and a meeting of the European Central Bank slated for later on Thursday also kept participants wary.

Market watchers said hedge selling ahead of the 10-year tender was nudging yields higher.

"The auction is expected to be a dealer-led affair as investors are likely to weigh the outcome of the U.S. jobless data and the ECB meeting first," said Tatsuo Ichikawa, fixed-income strategist at ABN AMRO Securities.

The coupon will likely be set at 1.7 percent based on current yield levels, compared with a 1.8 percent coupon in the previous month's auction.

The retreat in JGBs was limited as a run on Tokyo shares shored up sentiment. The Nikkei .N225, after marking the longest losing streak in 43 years the previous day, slid a further 0.5 percent on Thursday.

September 10-year futures 2JGBv1 slipped 0.01 point to 134.67 after rising earlier to 134.87 in response to the overnight gains in U.S. Treasuries.

The benchmark 10-year yield JP10YTN=JBTC rose 1.5 basis points to 1.670 percent.

($1=105.83 yen)

(Editing by Brent Kininmont)