JGB futures climb, gains trimmed after Suda remarks

* JGBs gain with Treasuries, trade light

* Suda comments about raising rates limit gains

* Market players worry rise in futures has gone too far

* JGB 2-year auction draws solid demand

By Rika Otsuka

TOKYO, Aug 28 (Reuters) - Japanese government bond futures edged up on Thursday, crawling towards a four-month high struck earlier this week as investors took their cue from an overnight rise in U.S. Treasuries.

But gains were limited since investors feared futures had risen too sharply, while Bank of Japan board member Miyako Suda said the central bank should raise rates once it is confident of the economy's health.

Her remarks triggered light selling.

Suda said any future decision to raise rates should be made early to avoid a rapid rise later on. [ID:nT3667]

JGBs have climbed on mounting signs the U.S. downturn is taking a toll on Japan and the global economy, convincing investors the BOJ is unlikely to change interest rates from the current 0.5 percent for several months.

In addition, foreign investor buying has pushed futures to levels deemed excessively high compared with medium-term JGB yields, analysts and traders have said.

Investors are now waiting for further signs of economic or financial sector distress before buying JGBs aggressively.

"The market continues to look overheated," said Chotaro Morita, chief fixed-income strategist at Barclays Capital.

But he said technical factors alone would not be enough to trigger a bond sell-off.

The Japanese government is expected to outline an economic relief package this week, which could weigh on the bond market. More government bonds may be issued to fund the spending.

September 10-year futures rose 0.17 point to 138.25 2JGBv1. During Tuesday's after-hours trade, the lead futures contract rose as high as 138.80 1JGBv1, its highest since April.  Continued...