JGBs rise as stocks fall, 10-year auction eyed

* JGB futures rise as Nikkei's fall spurs safe-haven bids

* Focus on 10-year JGB auction, solid results expected

* Profit-taking may trim bond gains before fiscal year-end

By Kaori Kaneko

TOKYO, March 3 (Reuters) - Japanese government bonds rose on Tuesday as a decline in Tokyo stocks on growing fear about the U.S. financial sector prompted investors to shift their funds into government debt.

With the credit crisis taking a toll on global equity markets, investors were keeping an eye on the Nikkei share average .N225, which briefly touched a four-month low on Tuesday morning. [.T]

But bond gains were capped as the market took a wait-and-see stance before the results of a 10-year JGB auction due later in the day.

"Global stock markets are sinking and fears about unforeseeable losses in the financial sector in the U.S. and Europe are rising. With this situation, the bond market will likely keep a firm tone," said Naomi Hasegawa, senior fixed-income strategist at Mitsubishi UFJ Securities.

The Ministry Finance offered 1.9 trillion yen ($19.50 billion) of 10-year notes with a coupon of 1.3 percent, as widely expected, with the auction results due at 0345 GMT.

If the results are favourable, bonds will likely extend their rise, though investor profit-taking might cap gains, Hasegawa said.

While weak stock prices generally support demand for government bonds, investors have been taking profits in bonds to offset losses on their stock holdings before the fiscal year ends this month, limiting bond gains, analysts said.

Market players are also awaiting an auction of 500 billion yen in 30-year JGBs on Thursday. A large amount of redemptions in March is expected to help auctions this month, market watchers said.

March 10-year JGB futures climbed 0.24 point to 139.39 2JGBv1 after touching 139.53. Futures hit a one-month high of 139.97 last week.

The benchmark 10-year JGB yield fell 1.5 basis points to 1.280 percent JP10YTN=JBTC.

The 20-year JGB yield edged down 1 basis point to 1.905 percent JP20YTN=JBTC.

Global stocks plumbed new multiyear lows on Monday after AIG's record $61.7 billion quarterly loss and an $18.1 billion capital request by HSBC slammed financial markets. [ID:nN02421745]

The Dow Jones industrial average .DJI closed below 7,000 for the first time since May 1997 on heightened concerns about the extent of the damage to the financial system. [.N] (Editing by Chris Gallagher)