JGB futures hit 2-month high on Treasuries, stocks

* Treasuries rise overnight on bank worries, support JGBs

* Stock fall boosts JGBs' safe-haven appeal

* BOJ seen leaving rates at 0.5 percent at policy meeting

By Rika Otsuka

TOKYO, July 15 (Reuters) - Japanese government bond futures rose on Tuesday to strike a two-month high as renewed concerns about the U.S. financial sector boosted U.S. Treasuries overnight while sparking a sell-off in shares.

Market participants bought JGBs and some speculative players took long positions in early trade following Monday's rally in Treasuries, traders said.

But bond buying soon lost steam as the benchmark yield hit a three-month low, nearing the psychologically important 1.5 percent level, with some investors feeling that the pace of the past month's rally has been too fast.

"The JGB market has risen enough for now, although it may stay volatile in the short term as investors try to digest factors linked to the U.S. rescue plan for mortgage finance firms," said Chotaro Morita, chief-fixed strategist at Barclays Capital.

The U.S. Treasury and Federal Reserve offered emergency cash to troubled mortgage finance giants Fannie Mae (FNM.N) and Freddie Mac (FRE.N) on Sunday, and the Treasury also said it would buy shares in the companies to shore up investor confidence.

September futures 2JGBv1 climbed 0.40 point to 136.47 after reaching 136.60, their highest since mid-May.

The benchmark 10-year yield JP10YTN=JBTC was down 4 basis points at 1.540 percent, after hitting a three-month low of 1.535 percent.

The yield has fallen more than 35 basis points since it struck an 11-month peak of 1.895 percent in mid-June.

Investors awaited the announcement of an interest rate decision by the Bank of Japan due later in the day. The central bank is widely expected to leave interest rates on hold at 0.5 percent as it wraps up its two-day meeting on Tuesday.

BOJ Governor Masaaki Shirakawa is to speak at a news conference following the rate decision.

The BOJ is expected to warn that Japan's growth will likely be slower than it had expected a few months ago due to rocketing oil and raw materials prices. [ID:nT70058]

The Nikkei share average .n225 was down 1.3 percent, slumping to its lowest levels since early April. [.T]

U.S. Treasuries climbed on Monday in renewed safe-haven bidding as concerns about the banking sector hit stocks and cut expectations the Fed will raise interest rates any time soon. [US/] (Editing by Michael Watson)