JGBs gain on weak U.S. data, sagging Nikkei

* JGBs extend gains with Fed rate hike prospects doused

* Nikkei decline provides further support for debt

* Benchmark JGB yield touches one-month low of 1.665 percent

By Shinichi Saoshiro

TOKYO, June 25 (Reuters) - Japanese government bond prices rose on Wednesday, as a set of weak U.S. economic data released the previous day reinforced views that the Federal Reserve will stand pat on monetary policy after its two-day policy meeting.

A 0.7 percent dip in the Nikkei share average .N225 also supported JGBs.

Though a wait-and-see mood prevailed ahead of the Federal Reserve's two-day policy meeting and kept trading volume low, bond market participants gained assurance that the Fed's ability to tighten monetary policy was further restricted by the latest set of weak economic data.

Data released on Tuesday showed a slide in U.S. home prices and a decline in U.S. consumer confidence to a 16-year low. This cast doubts on the Fed's ability to hike interest rates, leading to a rise in Treasuries.

"Tuesay's release showed that the deterioration in U.S. economic indicators took a turn for the worse," said Naomi Hasegawa, a senior fixed-income strategist at Mitsubishi UFJ Securities.

"It is leading to expectations that the Fed may not hike after all, or even if it did, the tightening will not lead to a series of hikes," she said.

September 10-year futures 2JGBv1 rose 0.33 point to 134.48.

The benchmark 10-year yield JP10YTN=JBTC dropped 2 basis points to 1.675 percent after brushing 1.665 percent, a one-month low.

The five-year yield JP5YTN=JBTC slipped 4 basis points to 1.250 percent.