JGBs retreat on Nikkei rebound, upbeat data
* JGBs dip on Nikkei bounce, machinery orders spike
* Bargain hunters close in, trim JGB losses
* Superlong JGBs firm after US long bonds gain on oil
* May machinery orders beat forecasts, up 10.4% mth/mth
By Shinichi Saoshiro
TOKYO, July 9 (Reuters) - Japanese government bonds fell on Wednesday as Tokyo shares followed Wall Street higher, curbing demand for safe haven debt.
JGBs were also hit by an upbeat economic reading, as May machinery orders jumped 10.4 percent from the previous month, much higher than the median forecast for a 1.1 percent rise.
The bond market dropped in a knee-jerk reaction to the data, with September futures dipping as much as half a point, but bargain hunting soon trimmed losses.
Market watchers said investors are willing to buy JGBs on dips as not all were able to keep pace with Tuesday's bond rally, when soft stocks and good results of a five-year auction triggered a full point surge in futures and an 8 basis point drop in the benchmark yield.
"Bargain hunting is likely to gradually gain the upper hand, as prospects of an economic slowdown and financial sector concerns are prevailing market themes," said Eiji Dohke, chief fixed-income strategist at UBS Securities.
September 10-year futures 2JGBv1 were down 0.38 point at 135.20 after reaching a low of 135.05.
The five-year yield JP10YTN=JBTC rose 0.5 basis point to 1.210 percent after touching 1.230 percent.
The benchmark 10-year yield JP10YTN=JBTC rose 3.5 basis points to 1.650 percent.
The Nikkei stock average .N225 climbed 1.8 percent in response to the previous day's rise on Wall Street, which benefited as falling oil prices eased inflation concerns and the Federal Reserve hinted it would keep a lifeline open for banks. [.T]
But analysts did not read too much into the rebound by the Nikkei, which still remains on a shaky footing after its recent 12-day losing streak, the longest in over half a century.
The stronger-than-expected May machinery orders, often prone to veering far from consensus forecasts, were also taken with a grain of salt.
Orders in April and May, if averaged, are still down relative to those from the January-March quarter, while higher raw material costs are likely to further squeeze profit margins going forward, economists say. [ID:nT3709]
In contrast with their shorter-maturity counterparts, superlong bonds gained, shadowing longer-dated U.S. Treasuries, which rose overnight as falling oil soothed inflation worries.
U.S. crude oil CLc1 slipped below $136 per barrel on Tuesday, away from last week's record peak above $145.
The 20-year JGB yield JP20YTN=JBTC fell 1 basis point to 2.160 percent.
However, it remains to be seen how oil prices, if they continue to decline, will eventually affect JGBs.
"On the surface high oil means inflation, which is negative for debt," said Seiji Shiraishi, chief economist at HSBC Securities.
"But in the case of Japan, high oil, seen as negative for the economy, has also favoured debt as it works to stave off a Bank of Japan rate hike," Shiraishi added.
"Though the situation is very complex due to a myriad of factors that need consideration, falling oil presents one less downside risk to the economy. It could thus could lead to speculation towards the BOJ returning to a tightening bias," he said. (Editing by Chris Gallagher)
