JGBs rise as risk assets dumped, yields at 7-yr low

* Risk reduction pushes JGBs higher,futures break resistance

* Speculators buy back JGB futures

* Worries on global economy build

By Hideyuki Sano

TOKYO, June 29 (Reuters) - Japanese government bonds jumped on Tuesday, with five- and 10-year yields hitting seven-year lows after Chinese share prices and other risk asset prices fell sharply, boosting the allure of low-return JGBs.

Speculators were winding down their long positions in stock futures and short positions in JGB futures ahead of the end of the quarter, some market players said.

September JGB futures broke above the 141.20 area, which they had failed to pierce in the past two sessions, as Chinese shares fell more than two percent to a 14-month low, bringing down Japan's Nikkei share average .N225.

"A fall in Chinese shares is raising concerns that the Chinese economy, which is the engine of the world's growth, may be losing momentum," said Takeo Okuhara, portfolio manager at Daiwa SB Asset Management.

September 10-year JGB futures rose 0.38 point to 141.51 2JGBv1.

The 10-year cash bond yield dropped 4.0 basis points to 1.110 percent JP10YTN=JBTC, its lowest level since August 2003.

The five-year bond fell 2.5 basis points to 0.350 percent JP5YTN=JBTC, also a seven-year low, as thin market conditions ahead of the quarter-end on June 30 exaggerated market moves.

The 30-year JGB yield declined 3.5 basis point to a 16-month low of 1.915 percent JP30YTN=JBTC.

JGBs were also helped by vague anxiety over the global economy as euro zone countries face doubts over their public debt and banking system, while the U.S. recovery is seen as less robust after weak U.S. data earlier this month.

Such sentiment has helped push U.S. 10-year note yields below three percent for the first time in 14 months [US/].

A raft of Japanese economic data on Tuesday had little impact on the market. It showed industrial production fell 0.1 percent, almost in line with economists' forecasts.

The Bank of Japan tankan survey on July 1 is seen as a litmus test for whether JGBs can keep hefty gains made in late June.

Bond bears have said that current yield levels cannot be justified unless investors see a serious risk of a recession.

Japan's upper house election on July 11 will also be on market participants' radars.

Although Prime Minister Naoto Kan's ruling Democratic Party of Japan will stay in power regardless of the poll results because of its majority in the more powerful lower house, a poor showing will hurt Kan's drive to make fiscal reform a top priority.

Japanese money markets are calm ahead of the end of the quarter, showing little sign of stress in the Japanese banking system.

The overnight unsecured call rate is traded at 0.08-09 percent, near the Bank of Japan's policy target of 0.10 percent. (Editing by Joseph Radford)