JGBs track Treasuries higher, falling stocks help

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TOKYO, Oct 17 (Reuters) Japanese government bonds rose on Wednesday, helped by gains in U.S. Treasuries overnight and falling Tokyo shares.

A strong 30-year debt auction on Tuesday added a boost to JGBs as it showed solid investor demand for super-long bonds -- those with maturities of more than 10 years -- and encouraged dealer buying of the long-dated bonds.

Treasuries rose on Tuesday as credit market worries and sliding Wall Street stocks prompted investors to seek safety.

Disappointing earnings and outlooks from banks such as Wells Fargo&Co suggested an extended period of credit shortages, feeding the safe-haven bid for U.S. government bonds.

''The strong 30-year JGB auction yesterday provided comfort to market players who were anxious about investor demand,'' bond strategists at Shinko Securities said in a note to clients.

December 10-year futures rose 0.27 point to 135.00, hitting their highest levels in two weeks and pulling further away from the two-month low of 134.14 struck last week.

The benchmark 10-year yield dipped 2 basis points to 1.675 percent, touching its lowest level since Oct. 3 and staying below a two-month high of 1.745 percent struck last week.

The new 27th 30-year bond auctioned the previous day had not yet traded in early dealings, but the yield of 26th 30-year bond was at 2.455 percent in late trade on Tuesday, down 5.5 basis points on the day.

The five-year yield slipped 2 basis points to 1.210 percent.

The Nikkei share average fell 0.7 percent in early trade.

Many bond investors remained reluctant to take big positions in the absence of major domestic data that could give fresh clues on when the Bank of Japan will raise interest rates to 0.75 percent from the current 0.5 percent.

They showed little reaction to Japan's tertiary sector index of service industry activity which rose 1.3 percent in August from the previous month, beating a forecast of a 0.9 percent advance.

Market players looked to U.S. economic data later in the session including the Federal Reserve's Beige Book for clues on whether the Fed will cut interest rates again later this month, which in turn may suggest the timing of a BOJ rate hike.

Investors see a roughly 70 percent chance of the BOJ raising rates in December and an 80 percent chance of a hike by January, both little changed from late last week, according to swap contracts on the overnight call rate.


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