JGBs track Treasury drop,10-yr yield hits 8-mth high

* 10-yr JGB yield hits 1.555 pct, highest since Oct. 22

* Nikkei momentarily rises above 10,000 to weigh on JGBs

* Midterm sector supported by fair 5-yr auction prospects

* MOF raises new 5-yr coupon by 10 bps to 0.9 pct

By Shinichi Saoshiro

TOKYO, June 11 (Reuters) - Japanese government bond prices fell on Thursday, with the 10-year yield rising to its highest level since late October after Tokyo's Nikkei stock average momentarily hit 10,000 and the benchmark U.S. Treasury yield climbed to an eight-month high the previous day. [US/]

Market activity was subdued ahead of the results of a five-year JGB auction due at 0345 GMT.

The yield curve steepened, as shorter-dated maturities were supported by the prospect of a smooth five-year auction, while longer-dated JGBs sagged before an $11 billion 30-year U.S. bond auction later in the day.

"Weaker Treasuries and steady stocks have sent JGBs lower, but the JGB market is more stable compared to its U.S. counterpart," said Naomi Hasegawa, a senior fixed-income strategist at Mitsubishi UFJ Securities.

"Treasuries are being hurt by inflation concerns and worries that the Fed may shift towards monetary tightening next year, but in Japan the central bank is expected to stick to an easy policy well into the future," Hasegawa said.

Analysts said this expectation would probably help the market absorb the new five-year paper.

The Ministry of Finance raised the coupon on the new issue by 10 basis points to 0.9 percent, and this is seen as likely to attract core buyers of the maturity such as domestic banks.

Participants are also keeping an eye on how the 30-year U.S. Treasury auction is received later in the day.

The U.S. Treasury will offer a total of $65 billion in coupon-bearing debt this week as part of an effort to finance its massive economic stimulus packages.

It has already sold three- and 10-year debt this week, and the auctions have been closely eyed for their impact on U.S. yields.

Subdued results of a 10-year note auction on Wednesday raised supply worries and sent the U.S. benchmark yield to 4.0 percent for the first time since mid-October. [US/]

September 10-year JGB futures 2JGBv1 dipped 0.04 point to 135.61 after hitting a low of 135.47.

The two-year JGB yield JP2YTN=JBTC was unchanged at 0.375 percent.

The five-year yield JP5YTN=JBTC rose 1 basis point to 0.855 percent.

The benchmark 10-year yield JP10YTN=JBTC climbed 2 basis points to 1.555 percent, its highest since Oct. 22.

The 20-year yield was up 2 basis points at 2.190 percent JP20YTN=JBTC.

The spread between the two- and 20-year yields widened by 2 basis points to 181.5 basis points, edging back towards a 3-½ year high of 183 basis points struck earlier in the month.

The Nikkei .N225 edged down 0.3 percent after climbing above 10,000 to an eight month high. [.N] (Reporting by Shinichi Saoshiro; Editing by Joseph Radford)