JGB futures fall on stock rise, 30-yr auction eyed

* Treasuries slide, stock rise cut safe-haven buying of JGBs

* Reuters Tankan headline index hits a 5-year low in July

By Rika Otsuka

TOKYO, July 17 (Reuters) - Japanese government bond futures fell on Thursday, moving away from a two-month high hit earlier in the week, as an overnight slide in U.S. Treasuries and a rise in equities prompted investors to shift money to stocks from government debt.

Investors also took profits after a month-long bond rally that was sparked by renewed worries about the U.S. financial sector and increasing doubts over the prospects of Federal Reserve interest rate rises this year.

But losses were limited as concerns over the Japanese economy, as well as expectations that the Bank of Japan will leave interest rates on hold at 0.5 percent for a while, kept investors cautious about selling JGBs aggressively.

The Reuters Tankan, a monthly survey of leading Japanese firms that tracks the BOJ's closely watched tankan survey, showed on Thursday that manufacturers' business sentiment hit a five-year low in July as companies felt the pinch from surging energy and raw materials costs and sluggish demand. [JP/TAN1]

"Investors do not expect JGB yields to rise sharply from current levels," said Makoto Yamashita, chief JGB strategist at Lehman Brothers in Tokyo.

The BOJ lowered its assessment of the economy in a monthly report released on Wednesday, saying it was slowing further on rising prices of energy and raw materials. [ID:nTKU003420]

The report came after the central bank left interest rates unchanged at 0.50 percent on Tuesday.

BOJ Governor Masaaki Shirakawa said the BOJ is at a stage where it needs to carefully watch both downside risks to the economy and upside risks to prices, reinforcing expectations that the central bank will stand pat for some time.

September futures 2JGBv1 fell 0.23 point to 136.19, moving away from a two-month high of 136.79 hit on Tuesday.

But the lead contract was well above an 11-month trough of 132.05 hit in mid-June.

The benchmark 10-year yield JP10YTN=JBTC climbed 4 basis points to 1.605 percent, having risen from a three-month low of 1.530 percent struck on Tuesday.

The market's focal point on Thursday is the Ministry of Finance's auction of 30-year debt. The ministry is selling 600 billion yen ($5.7 billion) of 30-year paper in a reopening of the current No. 28 bond first issued in April with a coupon of 2.5 percent.

The 30-year yield rose 4.5 basis points to 2.450 percent JP30YTN=JBTC.

The Nikkei stock average .N225 was up 1.3 percent in early trade, tracking strong gains on Wall Street on Wednesday. [.T]

Treasuries slid the previous day, dented by a jump in stocks and data showing that U.S. inflation accelerated in June to 5.0 percent year-over-year. [US/] (Editing by Chris Gallagher)