JGBs firm, bolstered by month-end extension buying

* Short-covering seen after FOMC reiterates easing stance

* 10-yr futures rise, end above 14-, 100-day moving averages

* BOJ Yamaguchi comments underpin JGB sentiment

TOKYO, Jan 31 (Reuters) - Japanese government bonds gained on Thursday, lifted by month-end duration extension buying and short-covering in benchmark bonds after the U.S. central bank reassured investors that its bond buying would continue. Some funds typically buy longer-dated bonds at the end of a month to extend their portfolio's duration to match their benchmark indexes. "It's the end of the month, so there's extension buying," said Tomohiro Miyasaka, an analyst at Credit Suisse in Tokyo. "The U.S. Treasuries market was also relieved that FOMC will continue its policies for while," he said. The U.S. Federal Reserve said in a statement after its two-day policy meeting ended on Wednesday that it will continue its current economic stimulus programs, buying mortgage and U.S. government debt, until the labour market improves "substantially." "Some short-term investors were seen covering short positions after the FOMC didn't signal any change to policy overnight," said a fixed-income fund manager at a Japanese asset management firm in Tokyo. The 10-year JGB yield slipped 2.5 basis points to 0.750 percent, moving back toward last week's six-week low of 0.720 percent. It hit a two-week high of 0.775 percent on Wednesday. The 10-year JGB futures contract ended up 0.25 point at 144.30, closing above both its 14-day moving average at 144.27 as well as its 100-day moving average at 144.21.

The JGB market largely shrugged off data released early on Thursday that showed December factory output rose 2.5 percent in December, the fastest pace in a year and a half, but below the median market forecast for a 4.5 percent gain. Underpinning bond market sentiment, Bank of Japan Deputy Governor Hirohide Yamaguchi said that policymakers should not miss a "window of opportunity" to beat deflation, offering the strongest signal to date by a central bank policymaker that more stimulus may be on the way to achieve the bank's new 2 percent inflation target. The 20-year yield fell 1 basis point to 1.775 percent, and the 30-year bond yield lost 2.5 basis points to 1.980 percent. The Ministry of Finance's offering of 2.7 trillion yen of two year-notes proceeded smoothly as expected, as the central bank buys much of the issuance of that maturity through its asset purchase programme. The lowest accepted price was 100, and the bid-to-cover ratio was a robust 10.1, up from 9.73 at the previous sale. The coupon of 0.10 percent matched that of the past 13 sales as well as the interest the Bank of Japan pays on its current account excess reserves. The latest 2-year JGB traded flat on Thursday, with its yield at 0.075 percent. The five-year yield slipped 1.5 basis points to 0.140 percent, matching a low hit last week which was its lowest recorded level since Japan started issuing 5-year notes in 2000.