JGB futures hit 2-mth low on Treasuries, Nikkei

* JGB futures dip after overnight tumble in U.S. bonds

* Rebound in Tokyo shares pressures bonds further

* BOJ tankan shows Japan business sentiment turns negative

By Shinichi Saoshiro

TOKYO, Oct 1 (Reuters) - Japanese government bond futures slipped to a two-month low on Wednesday following a tumble in U.S. Treasuries the previous day on chances that Washington can still pass a bank bailout plan to stem the credit crisis.

A rebound by Tokyo shares in response to Tuesday's rally on Wall Street also increased the pressure on bonds.

Some bargain-hunting emerged after the Bank of Japan's closely watched tankan survey showed business sentiment turned negative in the third quarter for the first time in more than five years. [BOJ/QTR1]

But analysts said most of the market's attention was on how the U.S. bailout saga would unfold.

"Bargain-hunting did emerge on the weak Tankan. But the impact from domestic fundamentals is limited as the market is focused on what U.S. lawmakers will do next," said Shinji Nomura, chief market analyst at Daiwa Securities SMBC.

President George W. Bush and congressional leaders pledged to continue talks on the $700 billion plan to stem the credit crisis after its shock rejection by the House of Representatives on Monday.

In the Tankan, the headline index for large manufacturers was minus 3 against the median market forecast of minus 2.

It was the first negative reading since June 2003, underlining deteriorating corporate sentiment amid a global economic slowdown.

December 10-year futures 2JGBv1 fell 0.79 point to 136.75 after hitting 136.39, the lowest since late July.

Market players said thin trade exacerbated movements in futures, especially ahead of Thursday's 1.9 trillion yen ($17.92 billion) 10-year debt auction.

"The effectiveness of futures as instruments for hedging has diminished recently, and the swings we are seeing ahead of the auction are a reflection of that," said Tatsuo Ichikawa, fixed-income strategist at RBS Securities.

"Volatility in the futures market could increase as many dealers may delay hedging for the auction until they see further developments in the U.S. bailout plan," said Ichikawa.