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.