JGBs dip on Treasuries, supply concerns after GDP

* JGBs track Friday's slide by U.S. Treasuries

* Q4 Japan GDP marks biggest contraction since 1974

* Bleak GDP as expected, does little to support bonds

TOKYO, Feb 16 - Japanese government bonds dipped on Monday, tracking a retreat by U.S. Treasuries and dragged lower by supply concerns.

Data showing that Japan's economy had shrunk the most in 35 years did little to support JGBs, which saw the lead 10-year futures contract edge off two-week highs.

Real gross domestic product shrank 3.3 percent in the fourth quarter, marking the biggest drop since 1974. A slump in exports was the main reason for the contraction.

"The GDP numbers were as expected and did little to support JGBs," said Katsutoshi Inadome, a fixed-income strategist at Mitsubishi UFJ Securities. "The bonds instead reacted to the sharp fall by Treasuries on Friday."

U.S. Treasuries had tumbled as primary dealers sold newly acquired debt following last week's refunding auctions, and as Washington's new stimulus plan raised supply concerns.

Analysts said the bleak GDP numbers could heighten calls for bigger government stimulus to help the Japanese economy, spending expected to be funded by the issuance of more debt.

Even before Monday's GDP release, media reports pointed to a large fresh stimulus, including one report that the government and ruling parties are mulling a package that could include 20 trillion yen in fiscal spending to boost the economy.

March 10-year futures fell 0.32 point to 139.04. The futures had touched 139.41 on Friday, the highest since late January.

The benchmark 10-year yield climbed 4 basis points to 1.295 percent.

The five-year yield rose 3 basis points to 0.740 percent.

The two-year yield was unchanged at 0.385 percent.

Shorter-dated JGBs were better supported on expectations that the Bank of Japan will discuss ways to lower term interest rates at a two-day policy meeting starting on Wednesday.

Market focus is on whether the BOJ will discuss increasing the amount of short-term bills it buys to bring down term rates.

Term rates roughly encompass lending rates from one week to a year.

Although the BOJ cut its target for overnight rates close to zero in December, term rates had remained elevated due to credit and liquidity concerns, dampening sentiment in the money market.

Japan's Nikkei stock average edged down 0.2 percent on Monday following the GDP data and on a slightly firmer yen.