JGBs drop, curve steepens after lackluster 10-year sale

* Drop not unexpected given sharp gains recently - trader

* 10-yr yield touches lowest since June 2003

* 10-yr futures end down after hitting record high

* Curve steepens as superlongs skid on profit-taking

TOKYO, March 5 (Reuters) - Japanese government bonds sagged after a lackluster 10-year debt sale on Tuesday, though benchmark yields marked their lowest in a decade before the auction on continued expectations of aggressive easing from the Bank of Japan.

A wave of profit-taking in the afternoon pulled superlong yields sharply off fresh record lows struck early in the day.

The Ministry of Finance offered 2.4 trillion yen ($25.7 billion) of 10-year JGBs with a coupon of 0.6 percent, the lowest since June 2003's 0.5 percent.

The notes sold at a lowest price of 99.57, and the sale drew bids of 2.37 times the amount offered, down from the previous sale's bid-to-cover ratio of 2.75. The tail between the average and lowest accepted prices was 0.09, slightly wider than 0.02 at last month's offering.

"The auction result was a little bit weaker than I think some people expected," said Tadashi Matsukawa, head of Japan fixed income at PineBridge Investments.

"A lot of banks decided to take profit on the 10-year and the 20-year, and I think that's what's happening today," he added.

The yield on the benchmark 10-year JGB added 4 basis points to 0.645 percent after earlier dropping as low as 0.585 percent, its lowest since June 2003.

The 10-year JGB futures contract skidded 0.34 point to end at 144.98 after rising to a morning session peak of 145.38, an all-time high.

Underpinning bonds in the longer term, the government's nominees to be BOJ deputy governors, Hiroshi Nakaso and Kikuo Iwata, both underscored at their Tuesday confirmation hearings that they are committed to beating deflation if appointed.

Iwata said that foreign bond purchases would be a policy option only if other initiatives failed.

"With CPI still negative and the BOJ committed to buying bonds until it achieves its 2 percent inflation (target), it's hard to sell bonds, although some profit-taking is natural after this week's huge gains," said a fixed-income fund manager at a Japanese asset management firm.

Japanese investors continued buying on dips in the morning session ahead of the March 3 financial year-end, he said.

Superlong bonds gave up gains in the afternoon as they succumbed to profit-taking in the wake of the previous session's surge.

The 30-year bond yield added 2.5 basis points to 1.700 percent after earlier dropping as low as 1.625 percent, its lowest level since August 2010. In the previous session, the 30-year yield plunged 9.0 basis points, its biggest daily fall since mid-2010.

The 20-year yield jumped 6.5 basis points to 1.555 percent, after earlier dropping as low as 1.450 percent, its lowest level since mid-2003. It dropped 8 basis points on Monday.