JGBs climb on Nikkei, 10-yr yield hits six-week low

* JGBs climb on sliding stocks, gains in Treasuries

* Benchmark yield touches six-week low of 1.590 percent

* Decade-high nationwide CPI seen as negative for growth

* BOJ expected to sit tight on rates

By Shinichi Saoshiro

TOKYO, June 27 (Reuters) - Japanese government bonds climbed on Friday, driving the benchmark 10-year yield to a six-week low, as a 2 percent percent slide in domestic shares and a surge in U.S. Treasuries overnight spurred safe-haven buying.

The fall in the Nikkei average .N225 overshadowed a slew of domestic data released on Friday, which showed core inflation accelerating to a decade high and that a surge in energy and food prices is taking a toll on consumer spending. [ID:nT189211]

Analysts said mounting signs that the Japanese economy is losing steam mean monetary tightening is not a viable option for the Bank of Japan, and expectations for an interest rate hike this year have quickly faded over the past two weeks.

"Under normal circumstances, a higher-than-expected CPI reading could reinforce concerns about monetary tightening. But the JGB market is already looking ahead to an economic downturn," said Kazuhiko Sano, chief fixed-income strategist at Nikko Citigroup.

September 10-year futures 2JGBv1 rose 0.50 point to 135.36 and climbed as high as 135.53.

The 10-year yield JP10YTN=JBTC was down 4.5 basis points to 1.600 percent at midday and touched a six-week low of 1.590 percent, falling more than 30 basis points from 11-month highs hit earlier in the month.

The five-year yield JP5YTN=JBTC fell 5 basis points to 1.160 percent, while the two-year yield JP2YTN=JBTC dropped 4 basis points to 0.780 percent.

Overnight index swaps JPONIBOJ=TRDT were pricing in only a 25 percent chance of a BOJ quarter-point rate hike by the year-end, down from 35 percent the previous day and falling sharply after having fully priced in such a move earlier in the month.

Japan's nationwide core CPI, which excludes fresh food prices but includes energy, rose 1.5 percent in May from a year earlier, slightly above a median forecast of 1.4 percent and the fastest annual inflation rise since March 1998. [JPCPI=ECI]

While Japan's industrial output grew an above-forecast 2.9 percent rise in May from a month earlier, the government downgraded its assessment to say production was in a slightly weak to flat trend. [JPIP1=ECI]

JGBs were also supported by gains in U.S. Treasuries, which surged as the Dow Jones industrial average .DJI dropped to a 21-month low.