INDIA BONDS-Bond yields little changed ahead of anticipated RBI rate hike

MUMBAI, Sept 26 (Reuters) - Indian government bond yields ended largely unchanged on Monday as traders braced for another aggressive rate hike from the Reserve Bank of India later in the week, even as the benchmark bond yield dipped amid short covering from traders.

The benchmark Indian 10-year government bond yield ended at 7.3593%, after closing at a two-month high of 7.3926% on Friday. It had jumped 16 basis points in the last two sessions through Friday.

Even as sentiment remains cautious, traders covered short positions in the 2032 note, pushing down the yield as it has lower issuance.

"Globally, everything has turned bearish and we cannot remain immune for long," said Vijay Sharma, senior executive vice president at PNB Gilts. "We expect the central bank to go for another 50 basis points hike this week."

The Reserve Bank of India's policy decision is due on Friday, with 26 of 51 economists in a Reuters poll predicting a 50 basis-point hike, taking the repo rate to 5.90%. Another 20 predicted a 35 bps increase.

Societe Generale also expects the RBI to hike rates by 50 bps and while it expects pricing pressure to ease next year, assuming the exogenous shocks to inflation fade, "it remains a big elephant in the room."

India's inflation rose to 7% in August and has stayed above the central bank's upper tolerance level for eight straight months to August.

Meanwhile, the U.S. Treasury yield curve inversion continued to deepen, with yields also reacting to British government debt that jumped after the new government unleashed historic tax cuts and the biggest rise in borrowing since 1972 to pay for them.

The 10-year U.S. yield jumped above 3.80% on Friday, its highest level in more than 12 years, while the two-year yield continued to trade near 15-year highs.

Last week, the Federal Reserve hiked interest rates by 75 bps for the third consecutive time and Chairman Jerome Powell said central bank officials are "strongly resolved" to bringing down inflation. (Reporting by Dharamraj Lalit Dhutia; Editing by Savio D'Souza)