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* Twenty-year yield heads for biggest 1-day rise in 2-1/2-year
* MOF to auction 2.4 trln yen of 10-year bonds on Tuesday
By Dominic Lau
TOKYO, April 1 (Reuters) - Japanese government bond prices fell on Monday, as investors took profits at the start of Japan's financial year after yields on benchmark 10-year debt had fallen to a near-decade low and ahead of an auction of the same maturity on Tuesday.
The 10-year yield added 3 basis points to 0.590 percent, hitting a two-week high and further backing off from a near-decade trough of 0.510 percent plumbed on Thursday. It fell 23.5 basis points in January-March, its sharpest quarterly fall in nearly three years.
"The market rallied towards the end of last fiscal year, so it's natural for market participants to realise profits in the beginning of the new book," said Naomi Muguruma, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities.
"They are also preparing themselves for coming auction."
The Ministry of Finance will sell 2.4 trillion yen ($25.5 billion) worth of 10-year debt on Tuesday.
Ten-year JGB futures fell 12 ticks to 145.34 after touching a record high of 145.98 on Thursday. Trading was active, with 20,444 contracts changing hands in the morning session, compared with last week's full daily average of 24,069 contracts.
Mounting expectations that the Bank of Japan will embark on aggressive stimulus policy have buoyed the JGB markets.
The central bank will likely start open-ended asset purchases immediately, rather than from 2014, and increase bond purchases from the current roughly 2 trillion yen per month at the two-day meeting that concludes on Thursday, sources familiar with the BOJ'S thinking told Reuters.
"Despite today's market correction, the underlying market sentiment remains firm. I think this correction will not continue for long," Muguruma said. "Investors who are selling to realise profit will have to buy back anyway sometimes in the near future."
But Barclays Securities said the 10-year yield could correct to around 0.650 percent in the near-term if the BOJ fell short of market expectations.
"If a gap emerges between expectations and actual policy, we believe the market could react to the extreme flattening that occurred at the end of last week," the brokerage said in a note.
"We would be unsurprised by a short-term correction to the mid-0.60 percent level in 10-year yields and 90 basis points level for 10-20-year spreads."
The 20-year yield rose 6.5 basis points to 1.450 percent, heading for its biggest one-day rise in 2-1/2-years and rebounding from a near-decade low of 1.360 percent hit on Friday.
The 30-year yield put on 6 basis points to 1.575 percent.
Both the 20- and 30-year yields posted their biggest quarterly falls in January-March since October-December 2008, when the global economy was reeling from its worst recession since the Great Depression in the 1930s.