(Updates prices, adds auction results in paragraph 4, analyst

comments in 5-6 and 9-10)

By Rocky Swift and Junko Fujita

TOKYO, Nov 26 (Reuters) - Japanese government bonds

(JGBs) slid on Wednesday, with short-term yields touching

17-year highs, as investors weighed the financial burden of a

massive stimulus and chances for a near-term rate hike by the

central bank.

The benchmark 10-year JGB yield rose 0.5

basis point (bp) to 1.805%, after a 2.5 bps increase in the

previous session. The two-year yield rose 1 bp to

0.975%, and the five-year yield touched 1.34%,

both the highest since June 2008.

The Ministry of Finance sold about 400 billion yen ($2.57

billion) in 40-year JGBs, the nation's longest tenor, a week

after yields on the debt surged to a record high on concerns

over the size of Prime Minister Sanae Takaichi's economic

stimulus plan.

The auction's bid-to-cover ratio, a measure of demand, was

2.59, about even with the previous sale in September, and above

average over the past year. At 3.555%, the highest accepted

yield was the steepest on record.

"The bid-to-cover ratio was not particularly good or bad,

but it signalled that investors are not confident in buying

super-long-dated bonds," said Miki Den, a senior Japan rate

strategist at SMBC Nikko Securities.

"It looks as though a segment of investors was attracted by

the yield levels."

The 40-year yield fell 1 basis point to

3.680% after the auction, reversing from an increase earlier in

the session.

Japan's cabinet on Friday approved a 21.3 trillion yen

spending package, significantly larger than the previous year's.

Takaichi has said the plan would be funded with new bond

issuance if tax revenue is not sufficient, and overall JGB

issuance is expected to be smaller than last year's.

"Investors clearly have questions on whether capital markets

and Tokyo can handle the additional spending and the conflicting

dynamics between lawmakers and policymakers," said Kristian

Kerr, head of macro strategy for San Diego-based LPL Financial.

"The coming weeks will test the yen and JGB yields, as well

as the Takaichi administration."

Shorter-term yields have also been on the rise on

expectations the BOJ may be closer to raising its policy rate.

A change in BOJ messaging over the past week has shifted

focus back to the inflationary risks of a weak yen, comments

aimed at reminding markets that a December rate hike was still

possible, two people familiar with the bank's thinking told

Reuters.

($1 = 155.9000 yen)

(Reporting by Rocky Swift and Junko Fujita; Editing by

Subhranshu Sahu)