MUMBAI, Jan 12 (Reuters) - The Indian rupee is expected to have a choppy session on Friday, caught between bullish expectations of a U.S. rate cut, despite a higher-than-expected rise in U.S. consumer prices, and pegged back by the repeated failure to sustain past a key level.

Non-deliverable forwards indicate the rupee will open flat to slightly weaker to the U.S. dollar than its close of 83.0275 in the previous session. The rupee managed to briefly climb above 83 on Wednesday and Thursday.

"It will be a choppy kind of a day, in the sense there are good reasons for a move higher or lower," an fx trader at a bank said.

"On one hand, investors remain convinced of big Fed rate cuts year, despite the U.S. data, and on the other, we have the dips (on USD/INR) just not holding."

Headline U.S. consumer price index rose 3.4% year-on-year in December, compared to forecasts of a 3.2% increase. On a monthly basis, CPI rose 0.3% versus expectations of a 0.2% increase. Core CPI rose 3.9% year-on-year, against 3.8% expected.

While U.S. yields and the dollar index climbed following the data, the moves did not hold up. The dollar index is at 102.20, having rallied to 102.75, and the 2-year U.S. Treasury yield is down 14 basis points off the highs at 4.26%.

The odds of a Federal Reserve rate cut in March are slightly higher than before the inflation data and investors now expect 150 basis points of cuts this year compared with about 140 before the data.

ING Bank pointed out that the inflation data was "just one measure" and that the CPI outlook "remains encouraging".

"The CPI report isn't the only inflation measure the Fed looks at. In fact, the preferred measure – the core personal consumer expenditure deflator – has shown much better performance."

KEY INDICATORS:

** One-month non-deliverable rupee forward at 83.12; onshore one-month forward premium at 8.75 paisa

** Dollar index down at 102.18

** Brent crude futures up 2.2% at $79.1 per barrel

** Ten-year U.S. note yield at 3.98%

** As per NSDL data, foreign investors sold a net $198.5 million worth of Indian shares on Jan. 10

** NSDL data shows foreign investors sold a net $23.3 million worth of Indian bonds on Jan. 10 (Reporting by Nimesh Vora; Editing by Savio D'Souza)