MUMBAI, Feb 26 (Reuters) - The Indian rupee will be supported by equity inflows this week, while bankers closely monitor whether the central bank will entertain the possibility of allowing the currency to appreciate. Local government bonds, meanwhile, are likely to track trends in U.S. Treasuries.

India is expected to record passive inflows of $1.2 billion into equities following MSCI's quarterly review, set to take effect on Feb. 29, according to calculations by Nuvama Alternative & Quantitative Research.

The inflows, however, are not expected to trigger a significant upside for the rupee, which ended at 82.9375 on Friday, notching a weekly advance of 0.1%. Traders anticipate the currency to fluctuate in the 82.75-83.15 band this week.

The currency would have rallied if it were not for the Reserve Bank of India's (RBI) dollar purchases, traders said. The RBI intervened heavily in the foreign exchnge market on at least two occasions last week, they said.

"With RBI buying dollars, it is difficult to see how rupee can appreciate much. Expect the support level (on USD/INR) of 82.75-82.80 to hold," Kunal Kurani, associate vice president at Mecklai Financial, said.

The key U.S. data to watch this week is the January headline and core PCE index. This data will draw extra scrutiny following the higher-than-expected U.S. consumer inflation reading.

Meanwhile, the 10-year Indian government bond yield is expected to be in the 7.06%-7.14% range this week, traders said.

The yield ended at 7.0764% last Friday, marking a fall of two basis points for the week, after supply for the financial year ended and foreign investors bought longer duration bonds. However, a spike in Treasury yields capped the decline.

Traders are cautious as the minutes from recent policy meetings of the Federal Reserve and the RBI suggest that imminent rate cuts are unlikely due to central banks' concerns over inflation.

The odds for a Fed rate cut in May have dropped to around 30%.

Earlier this month, the RBI maintained its key policy rates and stance, reiterating its commitment to meeting the 4% medium-term inflation target consistently.

The RBI might consider altering its policy stance around late April-June, potentially leading to a rate cut in October, depending on the broader macroeconomic and global developments, DBS Bank said.

The 10-year yield is hovering above 7% in recent days, with the uptick in Treasury yields providing support, while strong portfolio inflows into debt and a manageable borrowing program prevented significant move up, Radhika Rao, senior economist at DBS Bank said.

Bond traders will also keep an eye on the central bank's liquidity management strategy, as banking system liquidity persists in substantial deficit.

KEY EVENTS: ** U.S. Jan new home sales units - Feb. 26, Monday (8:30 p.m. IST) ** U.S. Jan durable goods - Feb. 27, Tuesday (7:00 p.m. IST) ** U.S. Feb consumer confidence - Feb. 27, Tuesday (8:30 p.m. IST) ** U.S. second estimate of Oct-Dec GDP - Feb. 28, Wednesday (7:00 p.m. IST) ** India Jan fiscal deficit data - Feb. 29, Thursday (3:30 p.m. IST) ** India Jan infrastructure output data - Feb. 29, Thursday (5:30 p.m. IST) ** India Oct-Dec growth data - Feb. 29, Thursday (5:30 p.m. IST) ** U.S. Jan personal consumption expenditure, core PCE index - Feb. 29, Thursday (7:00 p.m. IST) ** U.S. initial weekly jobless claims week to Feb. 19 - Feb. 29, Thursday (7:00 p.m. IST) ** U.S. Feb S&P Global manufacturing PMI - Mar. 1, Friday (8:15 p.m. IST) ** U.S. Feb ISM manufacturing PMI - Mar. 1, Friday (8:30 p.m. IST) ** U.S. Feb U Mich sentiment final - Mar. 1, Friday (8:30 p.m. IST) (Reporting by Dharamraj Dhutia and Nimesh Vora; Editing by Dhanya Ann Thoppil)