INDIA BONDS-Indian bond yields may rise in run up to RBI's policy meet this week

MUMBAI, June 5 (Reuters) -

Indian government bond yields are expected to move higher in early trading on Monday, tracking a spike in U.S. peers after employment data in May, while investors now wait for the Reserve Bank of India's (RBI) upcoming monetary policy decision due later in the week.

The 10-year benchmark 7.26% 2033 bond yield is expected to be in the 6.98% to 7.03% range, after closing at 6.9823% in the previous session, a trader with a private bank said, saying there should be an initial reaction to U.S. yields, moving the domestic benchmark above 7%.

"But any major direction-changing move may happen only after Thursday's policy decision."

U.S. Treasury prices fell, with yields especially at the shorter end rising, after data showed employment increased more than expected in May, which could pressure the Federal Reserve to hike interest rates later this month.

U.S. non-farm payrolls increase by 339,000 in May, while economists polled by Reuters had forecast payrolls increasing by 190,000. The economy created 93,000 more jobs in March and April than previously estimated.

However, a jump in the unemployment rate to a seven-month high of 3.7% suggested that labour market conditions were easing, which could give the Fed a cover to forgo an interest rate hike.

The odds of the Fed pausing rate hikes in June have stayed around 30%.

Meanwhile, RBI is scheduled to announce its monetary policy decision on June 8. It surprised markets with a status quo on rates in its April policy.

According to a Reuters poll of 64 economists, the RBI will leave key interest rate unchanged at 6.50% and for the rest of 2023.

"...With considerable uncertainty around the commodity prices path and global growth, the RBI is likely to retain the liquidity tightening stance," Goldman Sachs said in a note. KEY INDICATORS: ** Brent crude futures up 1% at $76.85 per barrel, after rising 2.5% in previous session ** 10-year U.S. Treasury yield at 3.7215%, two-year note yield at 4.5451% (Reporting by Dharamraj Dhutia; Editing by Nivedita Bhattacharjee)