JGBs gain on firmer Treasuries, Nikkei slide

* Futures approach 4-month high as Nikkei slides 2.7 percent

* Market awaits Bank of Japan's view on economy

By Shinichi Saoshiro

TOKYO, Aug 19 (Reuters) - Japanese government bonds climbed on Tuesday, nudged up by gains in U.S. Treasuries and a tumble in Tokyo shares.

Bonds continued to draw support from concern about the domestic and global economies that is also underpinning the view that the Bank of Japan will keep interest rates steady in the coming months.

Money market futures showed that some investors have even begun pricing in the possibility of the central bank being forced to lower rates.

"The JGB market is supported all around. Supply and demand conditions are good, sentiment is solid and Treasuries gained overnight," said Shinji Nomura, fixed-income strategist at Daiwa Securities SMBC.

JGB gains, however, were tempered by caution ahead of the BOJ's verdict on the economy and wariness over prices being driven too high before Wednesday's 1.9 trillion yen ($17.3 billion) five-year auction.

Japan's central bank is expected to downgrade its view on the economy and keep interest rates unchanged at 0.5 percent at a policy board meeting expected to end some time between 0300 and 0430 GMT. [BOJ/RES1]

It's the first rate review since GDP numbers showed last week that the Japanese economy suffered its biggest contraction in seven years during the second quarter.

Money market futures JPONIBOJ=TRDT suggest some investors see a chance of a BOJ rate cut by March next year, but analysts said this had to be taken with a grain of salt as price moves were exaggerated by a relatively thin market.

"Market participants remember rate cut expectations increasing back in March, only for those expectations never to come through," said Nomura at Daiwa Securities SMBC.

"There will of course be some participants who will go ahead and price in tightening, but many are still unsure about taking rate cut expectations at face value after the experience in March," said Nomura.

In March, the benchmark 10-year JGB yield declined to a three-year low of 1.215 percent on mounting credit woes and concerns over the economy, which in part fanned BOJ rate cut expectations.

However, the benchmark yield rebounded sharply and peaked at 1.895 percent in June as inflation concerns, among other factors, put to rest prospects of a rate cut.

September 10-year futures 2JGBv1 rose 0.15 point to 137.99, approaching a four-month high of 138.12 hit last week.

The benchmark 10-year yield JP10YTN=JBTC fell 1 basis point to 1.430 percent.

The five-year yield JP5YTN=JBTC inched down half a basis point to 1.000 percent.

At current yield levels the coupon on the new five-year paper to be offered on Wednesday will be slashed to 1.0 percent from the previous auction's 1.3 percent.

The prospect has not excited dealers, who fear investor demand may wane if such a low coupon is offered.

The Nikkei stock average .N225 stooped to a one-month low, sliding 2.7 percent to 12,816.43. [.T] (Editing by Hugh Lawson)