SSPI handshake failed with error code 0x8009030c when connecting to localhost, but not 127.0.0.1

I am using JDBC to connect to SQL Server 2005 locally using integrated security. It is failing with:

Error: 17806, Severity: 20, State: 2.

Logon       SSPI handshake failed with error code 0x8009030c while establishing a connection with integrated security; the connection has been closed. [CLIENT: 127.0.0.1]

Logon       Error: 18452, Severity: 14, State: 1.

Logon       Login failed for user ''. The user is not associated with a trusted SQL Server connection. [CLIENT: 127.0.0.1]

But I am able to connect successfully using 127.0.0.1. The connection is failing only when I give localhost.

MY Connection URL is

jdbc:sqlserver://LOCALHOST:1433;DatabaseName=master;integratedSecurity=true