JGBs rise on weak stocks, capped before auction

By Chikako Mogi

TOKYO, Dec 3 (Reuters) - Japanese government bonds edged higher on Monday as Tokyo shares eased, but wariness over a 10-year auction in the next session weighed on bond prices.

The JGB market, which has been tracking moves in U.S. Treasuries and taking cues from stocks, stayed in narrow ranges as Treasuries ended little changed on Friday while the Nikkei share average .N225 struggled to keep gains and ended the morning down 0.26 percent.

"The JGB market is watching stocks for direction, and sentiment remains positive as Treasuries are supported by expectations for a rate cut by the Federal Reserve," said a JGB dealer at a Japanese bank.

"Market players believe a Fed rate cut will make it difficult for the Bank of Japan to boost rates when global credit jitters persist, especially towards the year-end crossover," he said.

December 10-year futures 2JGBv1 rose 0.26 point to 137.29, ending the morning session near day's highs of 137.31 and inching closer to a 22-month high of 137.53 hit last month.

The 10-year yield <JP10YTN=JBTC> fell 1.5 basis points to 1.455 percent, still above a 26-month low of 1.395 percent hit last month.

Initial market reaction was limited to comments from BOJ Governor Toshihiko Fukui, who met with business leaders in Nagoya, central Japan.

Fukui said the U.S. economy could slow down further if there are more adjustments in its housing sector. However, he said the BOJ should not focus only on downside risks but keep an eye on inflation given robust global economic growth.