Indian bond yields rise; easing supply limits move

* Market unwinds some of last week's gains

* Cbank to auction $1.4 bln of state loans on Tuesday

* 10-yr yield may fall to 7.10 pct in few days - trader

By Neha D'silva

MUMBAI, Nov 23 - Indian federal bond yields rose on Monday as investors took profit on last week's surge to six-week highs and after selling by state-run banks, but the absence of an government bond auction this week capped the move.

The yield on the 10-year benchmark bond <IN069019G=CC> closed at 7.22 percent, just off a high of 7.23 percent in intra-day trade. It had ended at 7.18 percent on Friday, its lowest since since Oct. 8, after a 14 basis point fall over the week.

Volumes were a heavy 111.20 billion rupees on the central bank's trading platform.

"There are two primary reasons for the market correction today. One is that the nationalised banks were major sellers on Friday, which was a sentiment dampener, but I think the auction bidding on Friday was little on the aggressive side," said Mahhendra Jajoo, head of fixed income at Tata Asset Management.

Clearing house data showed state-run banks sold 19.80 billion rupees worth of government securities on Friday.

Cut-off yields at Friday's auction were lower than market expectations and the sale was fully covered. [ID:nMBI005916]

"We have seen in the past that around 7.15-20 percent levels there is some resistance. But now we are hoping that this correction will stop here maybe, and the market will stabilise," Jajoo said.

"A sentimental uptick in prices may happen in the next few days, and it is possible that it would fall to 7.10 percent."

Dealers said the absence of a bond auction this week and the fact bond sales scheduled over the remainder of the fiscal year were just 640 billion rupees also supported sentiment.

The government has sold bonds worth 3.54 trillion rupees of bonds so far since the beginning of the fiscal year in April.

Although there is no bond auction scheduled for this week, the central bank will auction 67.16 billion rupees of state loans on Tuesday and 70 billion rupees of treasury bills on Wednesday.

In interest rate futures on the National Stock Exchange , the December contract <N10Z9> implied a yield of 8.0050 percent, above its previous close of 7.8592 percent.

The yield implied in the March contract <N10H0> was at 8.2656 percent, below its previous close of 8.2929 percent.

The benchmark five-year interest rate swap ended at 6.54/58 percent, above Friday's close of 6.50/54 percent. [IN-SWAPS] ((neha.dsilva@thomsonreuters.com; Tel: +91 22 6636 9033; Reuters Messaging: neha.dsilva.thomsonreuters.com@reuters.net)) ((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com))