INDIA BONDS-Indian bond yields may inch higher ahead of record debt sale by states

MUMBAI, March 26 (Reuters) - Indian government bond yields are expected to open a tad higher at the start of the holiday-truncated week on Tuesday, before yet another record state debt supply, while a rout in the rupee in the previous session might continue to hurt.

The benchmark 10-year yield is likely to trade in a 7.06%-7.11% range, following its previous close of 7.0927%, a trader with a private bank said.

Indian markets were shut on Monday and will remain closed on Friday for public holidays.

"The state debt supply will add to the bearishness, as there was heavy selloff in late trades on Friday because of the sudden and unexpected fall in the currency. Still, we may not see benchmark yield moving above the 7.10%-7.12% zone," the trader said.

Indian states will aim to raise a record 600.32 billion rupees ($7.20 billion) through the sale of bonds later in the day, and the amount is more than double of what was scheduled, and would push the gross borrowing for the quarter to above 4 trillion rupees for the first time.

This bond sale comes after states raised over 742 billion rupees last week through two debt auctions, pushing up the gross supply for the fiscal to above 10 trillion rupees.

Bond yields rose on Friday as the rupee fell to a record low against the U.S. dollar, pressured by a drop in the offshore Chinese yuan and strong local dollar demand close to the end of the session.

The Indian currency is expected to open flat, even as it extended the decline further in the offshore non-deliverable market.

Meanwhile, U.S. yields continue to remain elevated, with the 10-year yield trading close to 4.25% mark, as recent data continued to raise concerns over easing, even as the Federal Reserve maintained its outlook for three cuts in 2024. KEY INDICATORS: ** Brent crude futures 0.3% higher at $87 per barrel, after rising 1.5% in previous session ** Ten-year U.S. Treasury yield at 4.2336%, two-year yield at 4.5806% ** Eighteen states to raise 600.32 billion rupees via sale of bonds ($1 = 83.3618 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Rashmi Aich)