(Updates prices following 40-year bond auction results)

By Kevin Buckland

TOKYO, May 28 (Reuters) - Long-dated Japanese government

bond yields rose further from three-week lows on Wednesday,

after demand at a closely watched 40-year bond auction dropped

to its lowest level since July.

The 40-year JGB yield jumped 9 basis points

(bps) to 3.375%, as of 0514 GMT, rebounding sharply from 3.285%

on Tuesday, its lowest point since May 7.

The 30-year JGB yield advanced 10 bps to

2.93%, from 2.83% on Tuesday, which was the lowest level since

May 2.

The 20-year yield bounced 8 bps to 2.415%,

after tumbling to a three-week low of 2.31% in the prior

session.

The bid-to-cover ratio, which measures total bids relative

to the amount of securities offered, fell to 2.21 from 2.92 at

the previous 40-year bond auction in March.

The auction was closely watched for signs of a recovery in

demand after an aggressive selloff last week saw super-long JGB

yields spike to record highs, with support from traditional

buyers of long-dated securities absent as life insurers and

pension funds trim purchases this year.

Analysts said the sharp drop in yields on Tuesday, after a

Reuters report that the Ministry of Finance was considering

cutting super-long bond issuance to ease market pressure, made

the bonds overpriced, deterring buyers at the auction on

Wednesday.

"The soft auction result and market reaction likely fan

expectations for the MOF to further tweak the sizes of

super-long-end auctions," with increased issuance of 2-year or

5-year paper as a likely result, said Frances Cheung, head of FX

and rates strategy at OCBC.

The Bank of Japan is unlikely to alter its quantitative

tightening plans to support the bond market at this stage, "but

should long-end yields increase more rapidly, some shifts ...

cannot be ruled out," he said.

BOJ Governor Kazuo Ueda said on Wednesday that the central

bank will watch whether swings in super-long yields have a

knock-on effect for shorter maturities, which have a larger

impact on economic activity.

Japanese Finance Minister Katsunobu Kato reiterated on

Wednesday that he is closely monitoring developments in the bond

market, echoing similar remarks made the previous day.

Last week, 30- and 40-year JGB yields hit record peaks at

3.185% and 3.675%, respectively, while the 20-year yield hit a

multi-decade high of 2.60%.

Yields had been rising steadily for weeks, but selling

pressure intensified abruptly amid growing concerns over debt

levels in major developed economies, particularly Japan and the

United States.

The 10-year JGB yield gained 6.5 bps to

1.525% on Wednesday, after dipping to 1.455% for the first time

since May 16 in the previous session.

The five-year yield rose 4.5 bps to 1.045%,

while the two-year yield added 2 bps to 0.75%.

Benchmark 10-year JGB futures fell 0.66 yen to

138.79 yen.