JGBs edge up as data paints bleak economic picture

* JGB futures edge higher on downbeat economic indicators

* Duration extensions also support JGBs

* Japan Oct industrial output -3.1% mth/mth vs -2.5% expected

* Japan Oct nationwide CPI 1.9% yr/yr vs 2.3% in Sept

TOKYO, Nov 28 - Japanese government bond futures edged higher on Friday on data showing that an economy already in recession was facing a further slowdown and slowing inflation.

Japan's industrial output declined 3.1 percent in October from the previous month, significantly lower than a 2.5 percent drop expected by the market, data showed on Friday. Manufacturers warned of deeper cuts ahead.

Annual core inflation slowed to 1.9 percent in October, with sliding energy prices heightening the risk of Japan slipping back into deflation.

December 10-year JGB futures gained 0.15 point to 139.47.

The benchmark 10-year JGB yield dipped 0.5 basis point to 1.365 percent.

Market watchers noted other factors supporting the bond market.

"The market is gaining as duration extensions for the month-end are kicking in automatically, and participants are also relieved after Thursday's two-year auction proceeded smoothly," said Tatsuo Ichikawa, a fixed-income strategist at RBS Securities.

Investors who follow certain indexes usually extend the durations of bonds in their portfolios towards the end of each month.

The JGB yield curve flattened on such duration extensions. The 20-year yield dropped 1.5 basis points to 2.035 percent and the 30-year yield declined 4 basis points to 2.110 percent.

The yield on the two-year JGB auctioned the previous day fell 0.5 basis point to 0.595 percent.

"The 0.6 percent coupon on the new two-year is boding well with buyers," Ichikawa said.