JGB futures fall on stock rally, position unwind

By Eric Burroughs

TOKYO, March 19 (Reuters) - Japanese government bond futures fell on Wednesday, pulling further away from a five-year peak struck this week as stocks rebounded on solid U.S. investment bank results that provided some relief to battered investors.

June 10-year futures 2JGBv1 dropped 0.33 point to 140.67 and tumbled as low as 140.41 at one point, well off the five-year peak of 142.00 struck in Monday's evening session.

The earnings from Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz) and Lehman Brothers (LEH.N: Quote, Profile, Research, Stock Buzz) reassured investors that no other major investment bank appears to be on the brink of collapse like Bear Stearns BSC.N, which was absorbed by JPMorgan Chase this week to prevent the credit crisis for spreading further.

The Federal Reserve's 75-basis point rate cut to 2.25 percent was a little less than expected but also bolstered hopes that the U.S. central bank is acting aggressively to contain the damage to the financial system and economy from the housing troubles. [nFEDAHEAD]

Typically a cut in interest rates is positive for bonds, but the biggest surge in Wall Street stocks in five years spurred selling of safe-haven debt. The Nikkei share average .N225 rose 3 percent.

But highlighting the Japanese economy's uncertain outlook, the Reuters Tankan survey showed sentiment at big manufacturers falling to a four-year low in March. The index suggests the Bank of Japan's tankan survey for the March quarter will show a similarly negative result when it is released on April 1. [JP/TAN1]

Bond investors were keeping an eye on the ongoing political drama over who will succeed Bank of Japan Governor Toshihiko Fukui, whose terms ends on Wednesday. The BOJ appeared set to be in the hands of a temporary governor, with the opposition saying it will reject the government's second candidate for the post. [ID:nT55777]

Some investors were also sceptical about the latest rebound in stocks, which have rallied several times during the seven-month credit crunch only to tumble again when more bad news has cropped up.