JGB futures hit 2-mth high on renewed credit worries
*Renewed credit jitters boost appeal of bonds
*Japan wholesale prices' 27-year high deepens econ concerns
*Japanese banks and life insurers continue buying JGBs
TOKYO, July 10 (Reuters) - Japanese government bonds climbed on Thursday, pushing futures to two-month highs, as renewed credit jitters knocked Tokyo shares and boosted the safe-haven appeal of debt.
JGBs drew support from U.S. Treasuries, which gained on Wednesday as worries about credit losses at financial institutions dragged the S&P 500 into a bear market, joining the Dow and Nasdaq.
Faltering world stock markets have deepened concerns about the global and Japanese economies, and prompted Japan banks and life insurers to return to bonds after enduring a fierce market sell-off from late May to mid-June, analysts said.
Japan's wholesale prices rose a bigger-than-expected 5.6 percent in June from a year earlier to a new 27-year high, data showed on Thursday, adding to companies' gloom over deteriorating profit margins. [ID:nT3800]
"Falling U.S. stocks to new lows imply overall asset prices there are falling as well, which in turn would deepen the economic slowdown," said Tetsuya Miura, fixed-income strategist at Shinko Securities.
"Such a view has been offsetting inflation worries and has been behind the bond bull market since late June," he said.
September futures 2JGBv1 climbed as much as 0.65 point to 136.40, the highest since May 13, before retreating to 136.23. Many traders were forced to cover their short positions in futures when they rose above 136.00, analysts said.
The benchmark 10-year yield JP10YTN=JBTC fell 4.5 basis points to 1.565 percent, a two-month low.
The five-year yield JP5YTN=JBTC tumbled 5 basis points to 1.135 percent and touched as low as 1.120 percent, a level not seen since early May.
Investors were increasingly jittery over the health of the financial sector with earnings reports from U.S. banks such as Merrill Lynch MER.N and Citigroup (C.N) coming next week.
Fitch Ratings said on Wednesday it may cut Merrill's debt rating due to expected ongoing write-downs and diminished prospects for earnings. [ID:nN09388512]
The ratings agency said it expects Merrill to report a fourth consecutive quarterly loss on July 17, and Wall Street analysts forecast the world's largest brokerage will post further write-downs of up to $6 billion in the second quarter.
The Nikkei share average .N225 was down 0.3 percent after falling nearly one percent earlier in the session. (Editing by Chris Gallagher)
