(Corrects to reflect extended trading session; rewrites paragraph 2 to change price levels and adds extension details in paragraph 3)

MUMBAI, Jan 15 (Reuters) - Indian government bond yields declined on Monday, with the benchmark 10-year bond yield dropping to a four-month low as a softer core inflation reading led to bets of easing inflationary pressures in the coming months.

The benchmark 10-year yield was at 7.1430% at 5 p.m. IST, versus its previous close of 7.1791%.

The central bank extended bond market trading until 5:45 p.m., from 5 p.m., traders said, citing a likely delay in publishing of debt switch results as a probable reason.

India's annual retail inflation rose 5.69% on-year in December from 5.55% in November amid higher food prices, but the reading was lower than a Reuters poll of 5.87%.

However, economists estimated core inflation at 3.8%-3.89%, compared to 4.05%-4.2% in November, while ICICI Securities Primary Dealership pegged it at an over four-year low of 3.76%.

"The fall in core inflation has been quite telling, and it can go even lower if the weak sequential momentum continues, reflecting the RBI's victory over price pressures," said ANZ economists Dhiraj Nim and Sanjay Mathur.

"If food disinflation proves to be satisfactory and the RBI's inflation projections begin to show an alignment of future inflation to 4%, we see the possibility of an earlier and deeper rate cutting cycle."

A sustained fall in core retail inflation and subdued inflationary pressures could prompt the Reserve Bank of India's rate-setting panel to ease its policy stance to 'neutral' as early as next month, economists have said.

The monetary policy committee has kept repo rate unchanged since April 2023, after raising it by 250 bps between May 2022 and February 2023 to battle high inflation.

U.S. yields eased last week after December producer prices data fell unexpectedly, raising bets of an early interest rate cut by the Federal Reserve.

The 10-year yield eased 9 basis points last week, ending at 3.95% on Friday, after rising 18 bps in first week of January. U.S. markets are closed on Monday for a holiday.

The odds of a rate cut by the Fed in March rose to 73% from 68% last week, according to the CME FedWatch tool. (Reporting by Dharamraj Dhutia; Editing by Varun H K)