Japan's Nikkei rallies, JGB yields hit 2006 high as BOJ hikes rates

By Kevin Buckland

TOKYO, Dec 19 (Reuters) - Japan's Nikkei share average rose more than 1% on Friday and the 10-year government bond yields hit a 19-year high at 2% after the Bank of Japan raised interest rates to a three-decade high and signalled more policy tightening to come.

The 10-year yield extended an earlier rise, following the central bank's as-expected rate hike to 0.75%, hitting the 2% mark for the first time since May 2006.

The level acted as a symbolic ceiling during Japan's decades-long struggle with deflation.

Equity investors took cues from an overnight U.S. session, where a rally in chip stocks lifted all three major Wall Street indexes.

The Nikkei extended its rally slightly after the BOJ's policy announcement, rising 1.3% to 49,629.26 as of 0400 GMT.

The broader Topix .TOPX rose 0.8% to 3,382.59.

Ten-year JGB futures 2JGBv1 fell as much as 0.5 yen to 132.84 yen, the lowest since June 2008. Bond prices move inversely to yields.