JGBs inch up as Treasuries gain, Nikkei falls

By Rika Otsuka

TOKYO, Oct 16 (Reuters) - Japanese government bonds inched up on Tuesday, following gains in U.S. Treasuries, while a 1 percent fall in Tokyo's Nikkei share average prompted investors to shift funds to bonds from stocks.

Treasuries gained moderately on Monday as losses on Wall Street inspired by a weaker financial sector and fresh worries about credit shortages sparked buying of safe-haven government debt.

While no major domestic data is due out this week to give fresh clues on when the Bank of Japan will raise interest rates to 0.75 percent from the current 0.5 percent, bond investors are taking cues from equities markets and Treasuries, analysts said.

A Reuters poll conducted between Oct. 9 and 12 showed a narrow majority of 27 out of 50 economists expect the BOJ to keep interest rates steady this year, while they see the central bank lifting rates in January-March next year. [nL15335073]

"JGBs are tracking movements in Treasuries and domestic share prices," said Hidenori Suezawa, chief fixed-income strategist at Daiwa Securities SMBC.

"But JGB yields are not expected to move sharply in either direction as their current levels are neither high enough to prompt aggressive buying nor low enough to spark heavy selling," Suezawa said.

The Nikkei share average .N225 finished the morning session down 1 percent at 17,182.36.

Another focus in the market this session is the Ministry of Finance's 600 billion yen ($5.1 billion) auction of 30-year bonds. The coupon was set at 2.5 percent, up from 2.4 percent from a similar debt sale in July and the highest since the October 2006 issue.