By Shinichi Saoshiro
TOKYO (Reuters) - Japanese government bonds rose on Monday, with futures hitting a two-week high, after concerns over Dubai's sovereign debt and a move by China to curb lending lifted U.S. Treasuries.
JGBs got a further boost as Tokyo's Nikkei stock average <.N225> shed 0.4 percent with worries over China offsetting better-than-expected Japanese gross domestic product (GDP) growth data.
March 10-year JGB futures rose 0.23 point to 139.60 after brushing 139.71, their highest since the end of January.
Market players said speculators including hedge funds covered short positions in bond futures after appetite for riskier assets was dulled in the wake of a surprise move by China to raise banks' reserve requirements last week.
Markets were rattled by fears that monetary tightening in the world's third largest economy would be more aggressive than had been reckoned on, potentially denting global growth.
"The unwinding of positions in assets considered to involve more risk is an ongoing theme amid prospects of China tightening monetary policy further," said Makoto Noji, a senior market analyst at Mizuho Securities.
"Concerns over U.S. bank regulations is another -- perhaps bigger -- factor prompting investors to take less risk."
The JGB market's reaction to stronger-than-expected Japan GDP data was limited as it remains to be seen if growth will continue when the effects of government stimulus fade. The GDP deflator posted its biggest annual fall on record and pointed toward deflation, a bond-positive factor, continuing to grip the economy.
Japan's GDP grew 1.1 percent in October-December from the previous quarter, bigger than a median market forecast for a 0.9 percent rise. That translated into an annualized increase of 4.6 percent, against a forecast of 3.7 percent.
The October-December GDP deflator dropped 3.0 percent from the previous year against expectations of a 2.2 percent decline.
The five-year yield fell 1 basis point to 0.505 percent ahead of an auction of the maturity on Tuesday.
The benchmark 10-year yield dipped 1 basis point to 1.315 percent.
The 20-year yield edged up 0.5 basis point to 2.150 percent.
The yield curve steepened slightly, with the five-year/20-year spread widening a basis point to 164.5 basis points.
(Reporting by Shinichi Saoshiro; Editing by Joseph Radford)
