MUMBAI, Oct 3 (Reuters) - Indian government bond yields were higher on Monday, after weaker-than-expected demand at a debt auction on Friday, and a fourth straight rate hike by the central bank, dented investor sentiment.

The benchmark Indian 10-year government bond yield was at 7.4293% as of 0435 GMT after closing at 7.3984% on Friday. The yield rose 21 basis points in September, the biggest such move since May.

"With quarter-end behind us, there are doubts on how long the demand from state-run banks will sustain with fundamentals pointing to more rise in yields," a trader with a primary dealership said.

New Delhi raised 330 billion Indian rupees ($4.04 billion) through sale of bonds on Friday at higher-than-expected cut-off yields.

The federal government aims to raise 5.92 trillion rupees through bonds in October-March, which includes 160 billion rupees of green bonds.

The government has lowered gross borrowing for the year by 100 billion rupees to 14.21 trillion rupees, and had borrowed 8.29 trillion rupees in the first half.

Meanwhile, Indian investors are expected to flock back to five-year government bonds, as the spread with the benchmark 10-year bond yield is expected to rise by 25-30 basis points after inversion, Raju Sharma, the fixed income head of IDBI Mutual Fund, said on Friday.

"The spread was around 30 basis points in August, before the talks of index inclusion gained pace. But, with it getting delayed, yields have been pushed down now, and investors should come back to the five-year bonds," Sharma said.

On Friday, the Reserve Bank of India raised benchmark repo rate by 50 basis points, the fourth straight increase in the current cycle, as policymakers extended their battle to tame stubbornly above-target retail inflation rate.

The RBI has now raised interest rates by a total of 190 basis points since its first unscheduled mid-meeting hike in May, but inflation remains sticky – a phenomenon that is affecting much of the global economy.

Most market participants now expect the central bank to raise rates by another 60 basis points in the current cycle.

Intraday, 10 Indian states plan to raise 195 billion rupees through sale of bonds. ($1 = 81.7750 Indian rupees) (Reporting by Dharamraj Lalit Dhutia; Editing by Neha Arora)