MUMBAI, March 28 (Reuters) - Indian government bond yields are expected to trend lower on the last trading session of this financial year, as the government's borrowing from the market in the first half was sharply lower than estimated, which will push up demand for securities.

The benchmark 10-year yield is likely to trend in a 7.00%-7.06% range on Thursday, following its previous close of 7.0694%, a trader with a private bank said.

Indian markets will be closed on Friday for a public holiday.

"There should be a gap down opening in benchmark paper of around three to four basis points, and the general direction will also be an easing bias, as auction calendar is a big positive for the market," the trader said.

New Delhi aims to borrow 7.50 trillion rupees ($90.00 billion) through bonds sale during April-September, which is 53% of the annual borrowing target, while the market had pegged the borrowing to be 56%-58%.

The lower-than-expected borrowing also surprised the markets, as they were anticipating a larger chunk, with demand from foreign investors set to improve further in the first quarter of fiscal 2025, as the index inclusion date nears.

"The change in issuance pattern is a positive, given India's inclusion into the JP Morgan EM bond index. The demand-supply dynamic in FY25 is likely to be favourable with demand supported by India's inclusion and strong demand from insurance, provident funds and pension funds," said Gaura Sen Gupta, an economist with IDFC First Bank.

The central government will borrow 3.21 trillion rupees via sale of Treasury bills in April-June, which is also below market expectations.

Market participants now await state debt auction calendar for the April-June quarter.

Meanwhile, global index provider FTSE Russell did not include Indian bonds in its index, and said the nation will remain on the FTSE Fixed Income Country Classification Watch List for the potential reclassification.

The 10-year U.S. yield stayed above 4.20% mark, as traders continue to assess the timing and extent of rate cuts from the Federal Reserve in 2024. KEY INDICATORS: ** Brent crude futures 0.5% higher at $86.60 per barrel, after easing 0.2% in previous session ** Ten-year U.S. Treasury yield at 4.2179%, two-year yield at 4.6158% ($1 = 83.3290 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Rashmi Aich)