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INDIA BONDS-Bond yields rise tracking U.S. peers ahead of key MPC decision

By Dharamraj Dhutia

MUMBAI, Dec 6 (Reuters) -

Indian government bond yields tracked an overnight rise in U.S. yields to open higher early on Tuesday, as a unexpected pick-up in the U.S. services industry rekindled expectations of the Federal Reserve continuing to raise interest rates in 2023.

At home, traders and investors waited for the RBI's monetary policy decision due on Wednesday, where the central bank is expected to hike rates by 35 basis points.

The benchmark 10-year yield was at 7.2396% as of 10:00 a.m. IST after ending at 7.2254% on Monday.

There is slow and steady upward movement in yields, which have however been unable to break the 7.20% handle, a trader with a primary dealership said, who did not want to be named because he was not authorised to speak to media.

He added that 7.25% levels should not be breached until the RBI's policy decision.

U.S. Treasury prices fell on Monday as strong data on the services and manufacturing sectors, after a solid non-farm payrolls report, reinforced expectations of the U.S. Federal Reserve continuing to raise interest rates in 2023.

The two-year U.S. yield was at 4.38%, while the 10-year yield was at 3.57%, the inversion between the two widening to above 80 basis points (bps). A deeply inverted curve generally precedes a recession.

Focus also remained on the monetary policy committee's decision, which is expected to hike rates by a smaller 35 bps to 6.25%, according to economists polled by Reuters.

Retail inflation eased to a three-month low of 6.77% in October, helped by a slower rise in food prices and a higher base effect. Barclays expects the reading to ease further to 6.4% in November. The data is due on Monday.

Meanwhile, five Indian states to raise 92.50 billion rupees ($1.12 billion) through a sale of bonds later in the day. The supply continues to remain lower than scheduled. ($1 = 82.3100 Indian rupees) (Reporting by Dharamraj Dhutia Editing by Nivedita Bhattacharjee)