JGBs edge up, futures hold near 2-1/2-year high

By Eric Burroughs

TOKYO, March 10 (Reuters) - Japanese government bonds edged up on Monday and futures climbed back near a 2-1/2-year high struck last week as U.S. data showing a second month of job losses knocked the Nikkei share average lower.

The mounting signs the U.S. economy has likely fallen into a recession combined with the renewed turmoil in credit markets has shaken investors and spurred more funds to shift cash into safe-haven debt.

JGB gains were kept in check after data showing Japanese machinery orders posted a surprisingly large 19.6 percent increase in January, easily beating expectations and providing some hopes that capital spending will help underpin growth. [ID:nT17328]

March futures inched up 0.14 point to 139.20 2JGBv1 but were off an early peak of 139.33 and not far from the 2-1/2-year peak of 139.50 struck on Friday.

The U.S. payrolls report showed that employers cut jobs in February at the fastest pace in five years, prompting analysts to conclude that the question is not whether the economy is contracting but for how long it will do so. [ID:nN07310787]

The gains in Treasuries after the poor data and the 1 percent drop in the Nikkei .N225 gave JGBs a slight boost.

But the reaction was limited as investors wait to see how the Federal Reserve's move to boost the amount of funds it pumps into the banking system via the Term Auction Facility will help ease the latest strains gripping credit markets. [ID:nN07346407]

Analysts said JGBs could see another volatile week of sharp swings in yields depending on developments abroad.