JGBs up on Nikkei,Treasuries; rate view caps gains

TOKYO, Feb 16 (Reuters) - Japanese government bonds rose on Friday, as a slip in domestic stock prices and rising U.S. Treasuries helped to pull the lead futures contract away from a one-month low hit in the previous session. JGB gains were limited as investors were cautious about aggressively buying bonds in the aftermath of strong economic growth data on Thursday that kept alive speculation that the Bank of Japan may raise rates at its policy meeting next week.

"The market has tilted a bit in favour of a rate rise scenario, but still the uncertainty (surrounding the BOJ's rate outlook) hasn't changed," said Tatsuo Ichikawa, a JGB analyst at ABN AMRO Securities.

March futures 2JGBv1 were up 0.20 point at 134.08 early in the session, after climbing as high as 134.16. The lead contract recovered after falling to 133.80 on Thursday, its lowest level since mid-January.

The yield on the benchmark 10-year JGB JP10YTN=JBTC slipped 1.5 basis points to 1.725 percent, boosted by a 0.20 percent fall in the Nikkei share average.

The two-year yield was down a basis point at 0.775 percent. Earlier in the session, the yield matched a one-month high of 0.795 percent previously hit on Thursday..

JGBs tracked gains in U.S. Treasuries, which rallied on Thursday after a benign inflation assessment by Federal Reserve Chairman Ben Bernanke and weak industrial production data raised speculation that the U.S. central bank may cut rates this year.

But analysts said the market's gains would likely be limited before the Bank of Japan's Feb. 20-21 policy meeting, given the chance that the central bank may raise rates to 0.5 percent.

Market participants anticipating a rate rise next week were vindicated by data on Thursday that showed that October-December GDP rose 1.2 percent from the previous quarter, well above forecasts for a 0.9 percent rise.

A Reuters poll taken after the figures showed that 24 out of 49 traders and analysts in Tokyo's foreign exchange and bond markets expect the BOJ to raise rates next week, indicating a clean split in market views on the central bank's rate outlook.

"Even on our desk, opinions are divided 50-50," said Ichikawa at ABN.

Swap contracts on the overnight call rate JPONI=TRDT on Friday showed roughly a 50 percent chance of a rate rise next week, up from around 30-40 percent over the past few weeks.

Japanese Finance Minister Koji Omi on Friday reiterated that he hoped the BOJ would sustain economic growth through monetary policy.

Omi said he would not comment on specific rate levels or whether the government would request a vote delay if the BOJ opts to raise rates.