REFILE-JGBs rise on Nikkei's slide, surge in Treasuries

(Adds "yields" in brackets in paragraph 5 quote)

* JGBs rise on Nikkei slide, U.S. bond rally

* 10-year yield hits 7-½ month low of 1.345 pct

* 10-year JGB auction draws firm demand

By Shinichi Saoshiro

TOKYO, Dec 2 (Reuters) - Japanese government bonds advanced on Tuesday, with a slide in Tokyo share prices and an overnight rally in U.S. Treasuries pushing the benchmark 10-year yield to a seven-and-a-half-month low.

The Nikkei share average dropped 6.4 percent .N225, bolstering demand for safe-haven government debt. JGBs were also supported after the U.S. 10-year Treasury yield sank to 50-year lows the previous day. [.T] [US/]

The bond market got a further boost following firm results to a 1.9 trillion yen ($20.31 billion) 10-year JGB auction.

The 296th 10-year JGB yield touched 1.345 percent, the lowest since mid-April. It later pulled back to 1.350 percent, down 5 basis points on the day.

"The previous day's sharp decline in U.S. Treasuries (yields) was a big factor nudging the JGB market higher," said Katsutoshi Inadome, a fixed-income strategist at Mitsubishi UFJ Securities.

The market, on the other hand, showed limited reaction to the Bank of Japan's decision to begin new money market operations after an emergency policy board meeting on Tuesday.

The BOJ said it would accept a wider range of corporate debt as eligible collateral from corporations in a move to help Japanese companies, who are faced with increasing difficulty gaining access to funds as the end of the year approaches. [ID:nTKF003180]

The BOJ, which also kept interest rates unchanged at 0.30 percent, said it would start accepting triple-B-rated corporate debt as collateral and temporarily adopt some new operations using corporate debt.

Analysts said the decision met with little surprise as the central bank had already said at its last policy meeting in November that it would be more flexible in buying commercial paper and increase the flexibility of its market operations collateralised with corporate debt.

The lead December 10-year JGB futures contract rose 0.32 point to 139.71 2JGBv1.

Decreasing liquidity in JGB futures was a slight concern for the market going into Tuesday's 10-year JGB auction, but analysts said the futures market functioned smoothly as dealers hedged for the 10-year auction.

The new 10-years drew steady demand from investors such as domestic banks amid a deteriorating economy and falling prices, traders said.

A gauge of demand, the bid-to-cover ratio at the auction rose to 2.90 from from 2.28 at the previous auction in November. TENDER11

"The auction results were satisfactory, with a decent bid-to-cover ratio, a lowest price in the upper end of forecasts and a tight tail," said Keiko Onogi, a senior JGB Strategist at Daiwa Securities SMBC.

REPO RATES EASE

JGB repo rates eased after massive fund supplying operations by the BOJ began to make an impact. On Tuesday, the BOJ offered to buy a total of 5.0 trillion yen in JGBs via repos for a second straight day.

The central bank's offer on Monday to buy 5.0 trillion yen in JGBs via repos was the biggest one-day amount for an operation of that type since the BOJ scrapped its quantitative easing policy in March 2006. Tuesday's offer matched that amount.

JGB repo rates dipped from last week's levels, with rates for a 1-day period starting Thursday standing around 0.35 percent, said a trader for a Japanese money broker.

Repo rates edged up to around the 0.50 percent Lombard rate last week due to concerns over counterparty risk, exposing short-end JGB yields to upward pressure.

The five-year JGB yield dropped 3 basis points to 0.825 percent JP5YTN=JBTC and the two-year yield fell 4 basis points to 0.540 percent JP2YTN=JBTC.

(Additional reporting by Masayuki Kitano; editing by Sophie Hardach)