JGB futures fall as investors trim positions

TOKYO, Aug 30 (Reuters) Japanese government bond futures fell on Thursday, stepping back from an 18-month high as a rebound in Tokyo shares prompted investors to trim positions.

Caution ahead of a speech by Bank of Japan board member Atsushi Mizuno, a well-known hawk, and a two-year debt auction later in the session also weighed on JGBs.

The Nikkei share average rose 1.5 percent in early trade, tracking a sharp recovery in the U.S. stocks.

Equities in Wall Street rose on Wednesday helped by Federal Reserve Chairman Ben Bernanke's reiteration of the central bank's commitment to ensure financial markets have adequate liquidity.

His comment in a letter to Democratic Sen. Charles Schumer stoked investor speculation about a much hoped-for interest rate cut.

''JGBs are being sold this morning in simple response to a rise in the Nikkei,'' said a senior dealer in the treasury division of a Japanese bank.

The dealer said the trading environment in the JGB market was still being swayed by developments overseas, as an interest rate rise by the Bank of Japan seen as early as September was expected to depend on moves by the Fed and the European Central Bank.

September 10-year futures fell 0.31 point to 135.37, pulling away from an 18-month high of 136.46 hit last week.

Benchmark 10-year yields rose 1.5 basis points to 1.595 percent, off an 18-month low of 1.540 percent hit last week, the lowest since before the BOJ ended its super-loose quantitive easing policy in March last year.

The five-year yield rose 2.5 basis points to 1.165 percent, while the two-year yield rose 2 basis points to 0.890 percent.

The Ministry of Finance will offer 1.7 trillion yen (.65 billion) in two-year JGBs at 0130 GMT. Traders expect a 0.9 percent coupon, down from 1.0 percent in the past three months for the maturity.

BOJ board member Mizuno is speaking from 0100 GMT in Kofu in central Japan when he is meeting local business leaders and will hold a news conference from 0430 GMT.

Investors were cautious that Mizuno could make hawkish comments after voting against a decision at the BOJ policy meeting last week to keep interest rates on hold at 0.5 percent.

Mizuno was the only board member who voted for a rate hike at last week's meeting, and also did so at the previous meeting in July.

Japan's retail sales in July fell 2.2 percent from a year earlier, data showed on Thursday, dipping more than the expected fall of 0.8 percent, but it had little impact on the market.

Reuters RKM VP0720