MUMBAI (Reuters) - The Indian rupee may inch higher this week after climbing to a two-week high on Friday, while the government bond yields are expected to decline after New Delhi cuts supply of Treasury bills for the next six weeks.

The rupee closed at 83.3350 against the U.S. dollar on Friday, its highest in two weeks, rising nearly 0.2% for the week.

Dollar sales from state-run banks, likely on behalf of the Reserve Bank of India, aided the rupee on Friday.

Most Asian currencies also ended the week higher after softer-than-expected April inflation data in the United States pressured the dollar and U.S. bond yields.

While analysts expect the rupee to gain slightly this week, a continuation of equity outflows may curb a potential uptick.

Foreign investors have sold Indian equities worth over $3 billion in May so far, the highest monthly outflow since January 2023.

There are "higher chances of move towards 83.15 level," Dilip Parmar, a foreign exchange research analyst at HDFC Securities said.

With limited data on tap to influence expectations of when the Federal Reserve may begin easing policy rates, the rupee may also take cues from remarks by Fed policymakers.

Indian FX and debt markets were shut on Monday and will remain closed on Thursday.

Meanwhile, the 10-year Indian government bond yield ended at 7.0925% on Friday, down one basis point for the week, its second consecutive decline.

Bond yields are expected to fall as India announced that it will reduce the supply of Treasury bills by 600 billion rupees for the next six weeks till the end of June.

Rajeev Pawar, the head of treasury at Ujjivan Small Finance Bank expects the benchmark bond yield to ease by 2-3 bps and more fall in shorter tenor bond yields.

Traders expect the benchmark bond yield to move in a 7.05%-7.12% range in the holiday-truncated week, with major focus also on movement in U.S. Treasury yields. Bond yields declined recently, tracking a drop in U.S. peers, which fell sharply after the April inflation data raised bets of at least two Fed rate cuts in 2024.

Meanwhile, the market will eye the response to the government's plan to buy up to 600 billion rupees ($7.20 billion) of bonds, its third such attempt, but with a change in securities.

"Tendering at this buyback could be a lot better than the previous two auctions," said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership.

Traders will also keep an eye on foreign inflows, as overseas investors have largely remained on the sell side since the start of this financial year.

KEY EVENTS: ** U.S. April existing home sales - May 22, Wednesday (7:30 p.m. IST) ** U.S. initial weekly jobless claims week to May 13 - May 23, Thursday (6:00 p.m. IST) ** U.S. April S&P Global manufacturing, services and composite PMI - May 23, Thursday (7:15 p.m. IST) ** U.S. April new home sales - May 23, Thursday (7:30 p.m. IST)

** U.S. April durable goods - May 24, Friday (6:00 p.m. IST)

** U.S. May U Mich sentiment final - May 24, Friday (7:30 p.m. IST)

($1 = 83.3700 Indian rupees)

(Reporting by Dharamraj Dhutia and Jaspreet Kalra; Editing by Eileen Soreng)

By Dharamraj Dhutia and Jaspreet Kalra