MUMBAI, Jan 2 (Reuters) - Indian government bond yields are expected to rise on Monday, the first trading session of 2023, as states announced a bigger-than-expected borrowing schedule for the January-March quarter.

The benchmark 10-year yield is likely to move in a 7.32%-7.37% band, a trader with a private bank said. The yield ended at 7.3277% on Friday.

The yield eased for the second consecutive quarter in October-December, but jumped 87 basis points in 2022, its biggest such move since 2009.

Indian states plan to raise 3.41 trillion rupees ($41.22 billion) by selling bonds in 13 weekly auctions between January and March, sharply higher than market expectations of 2.70 trillion rupees to 3.00 trillion rupees.

"There were large expectations of state borrowing calendar coming on the higher side, but the actual plans have taken most of us by surprise, and there should be some reaction at the open," the trader said.

The rise in government bond yields has largely remained capped as states borrowed far lesser than planned in the first three quarters of the financial year.

States borrowed 4.57 trillion rupees between April and December, lower than the scheduled 6.55 trillion rupees.

Bond yields have remained largely rangebound in thin volumes over the last two weeks as a bulk of the participants stayed on the sidelines ahead of the end of the quarter and calendar year.

Trading activity is expected to pick up slowly, with the next major triggers being domestic inflation data due next week and the federal budget, likely due on Feb. 1.

Inflation eased below 6% in November for the first time in eleven months but core inflation continued to remain above 6%, which, market participants expect, may force the central bank to opt for one more rate hike in February.

"The core inflation has been sticky at elevated levels and inflation has been pervasive, i.e. more than half of the constituents of the inflation index are contributing to high inflation," said Anand Nevatia, a fund manager with Trust Mutual Fund.

"It will thus take time for inflation to come down and stay within the central bank's target band on a durable basis."

KEY INDICATORS:

** Brent crude futures at $85.90 per barrel, rise after 10.5% in 2022

** 10-year U.S. Treasury yield was at 3.8310% and the two-year note at 4.4030%

($1 = 82.7170 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Savio D'Souza)