* Bid-to-cover at 30-yr auction was highest since Jan 2011
* 10-yr, 3-yr yield spread hits highest since March 2008
By Lisa Twaronite
TOKYO, Oct 11 (Reuters) - Japanese government bonds rose forthe third session on Thursday, after a 30-year sale generatedstrong demand and as slumping stocks increased the appeal offixed income assets.
The Ministry of Finance offered 700 billion yen ($8.9billion) of 30-year bonds with a coupon of 1.90 percent,matching that of the previous sale.
It sold the bonds at a lowest accepted price of 99.30 toyield 1.936 percent. The bid-to-cover ratio was 5.10, toppingthe previous sale's 4.46 and the highest since January 2011. Thetail between the average and lowest accepted prices shrank to0.04 from 0.1 at the last offering.
"I think the result was better than expected," said NaomiMuguruma, senior strategist at Mitsubishi UFJ Morgan StanleySecurities.
"Right after the auction result, I think the market was moreor less taking a wait-and-see stance, but since the Nikkeiremains weak and some follow-through purchases came in, ittested the upside," she said.
The Nikkei share average dropped 0.6 percent to itslowest close in more than two months on fears of weakercorporate earnings.
A 20-year JGB sale next Thursday will provide the next testof the market's appetite for superlong tenors.
"We'll see if investors come in and buy JGBs ahead of thatsale in the wake of the stronger auction result today," Mugurumaadded.
The yield curve had steepened this week ahead of the auctionas investors sold to make room in their portfolios to buy at thesale.
Ahead of the auction results, the spread between the 10-yearand 30-year yields rose to 1.17 percentage points, its widestsince March 2008.
The benchmark 10-year yield shed 1 basispoint to 0.755 percent, matching an eight-week low touched lastweek.
Ten-year JGB futures ended up 0.15 point at theirsession high of 144.33.
Yields on 30-year debt were flat at 1.925percent after rising as high as 1.940 percent before the auctionresults were announced, while those on 20-year bonds
fell half a basis point to 1.650 percent, downfrom a high of 1.660 percent. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ IMF cuts forecasts: ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
As representatives from the International Monetary Fundgathered in Tokyo for a regular meeting, the IMF prodded theworld's rich countries for swifter action on Thursday asEurope's debt crisis drags on while the United States and Japanshow scant progress handling their budget deficits.
Undermining demand for risk assets, the IMF cut its globalgrowth forecast this week for the second time since April.
Japanese Finance Minister Koriki Jojima said Thursday thatthe government might have to take fiscal stimulus measures tosupport the economy in the near-term, though he said it wouldstrive to keep its pledge to restore fiscal health.
($1 = 78.025 Japanese yen)
(Reporting by Lisa Twaronite; Editing by Joseph Radford)
Keywords: MARKETS JAPAN JGB/