INDIA BONDS-Indian bond yields to rise as Treasury yields spike

MUMBAI, April 12 (Reuters) - Indian government bond yields are expected to rise sharply in early trades on Friday, tracking a spike in U.S. Treasury yields as elevated inflation in the world's largest economy further dampened hopes of an early rate cut.

The yield on the benchmark 10-year is likely to trade in a 7.14%-7.20% range after closing at 7.1112% in the previous session on Wednesday, a trader with a private bank said. Indian markets were shut on Thursday for a holiday.

"The market is now completely under the control of the bears and the sheer magnitude of the spike in U.S. yields will see the benchmark bond yield breaking the strong resistance of 7.15% level quite comfortably," the trader said.

Traders will eye local inflation data as well as fresh debt supply later in the day but the undertone for the session would be that of caution, traders added.

U.S. Treasury yields climbed after hotter-than-anticipated inflation data on Wednesday raised doubts over the Federal Reserve's ability to lower interest rates this year.

The two-year yield, the closest indicator of rate expectations, topped 5% for the first time since November. The 10-year yield hit a five-month high.

The inflation reading, along with strong U.S. non-farm payrolls data last week, has slashed the odds of a rate cut in June to around 20% currently from 66% last week, according to the CME FedWatch tool.

The markets have moved significantly ahead to meaningfully price out Fed cuts this year, with the first one now only fully priced in for November, MUFG said.

India's consumer price inflation likely eased to a five-month low of 4.91% in March from 5.09% in February, according to a Reuters poll.

Later in the day, New Delhi will raise 300 billion rupees ($3.60 billion) via bond sales, including of a new 15-year paper.

KEY INDICATORS:

** Brent crude futures 0.9% higher at $90.50 per barrel, after easing 0.8% in previous session

** Ten-year U.S. Treasury yield at 4.5641%, two-year yield at 4.9355%

** India to sell sovereign bonds worth 300 billion rupees

** RBI to set underwriting fees for 300 billion rupees sovereign bond auction ($1 = 83.3150 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Savio D'Souza)