Indian bond yields drop to near 7-week low

* Market expects dovish rates to continue this fiscal

* Cbank to auction $1.5 bln of treasury bills on Wednesday

MUMBAI, Nov 25 - Indian federal bond yields fell to their lowest in nearly seven weeks on Wednesday, helped by an overnight drop in U.S. Treasury yields and the absence of a bond auction this week.

At 10:15 a.m. , the yield on the 10-year Indian benchmark bond <IN069019G=CC> was at 7.18 percent, after falling to 7.17 percent which was its lowest since Oct. 8. It had ended at 7.21 percent on Tuesday.

Volumes were moderate at 38.35 billion rupees ($828 million) on the central bank's trading platform.

"Yields fell today mainly due to a drop in U.S. yields but there could be intermittent profit booking through the day," said a trader at a private bank.

U.S. Treasury debt prices rose on Tuesday after a $42 billion auction of five-year Treasury notes attracted strong demand, indicating that investor interest in U.S. government debt remained high but they were little changed in Asian trade. [US/]

Reduced supply pressure has also given a breather to the Indian debt market after it rose 193 basis points this year on heavy government borrowing.

There is no bond auction scheduled for this week and the supplies remaining in the fiscal year to March is just 640 billion rupees, which traders say would be adequately balanced by demand in the market.

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

The Reserve Bank of India is due to auction 70 billion rupees of treasury bills on Wednesday.

Traders have also pushed back expectations of a rate hike to the end of the fiscal year from the policy review in January.

"The RBI has vented out its suspicion on growth momentum and the need to wait-and-watch before unwinding the accommodative monetary policy as an anti-inflationary stance," J. Moses Harding, head of global markets at IndusInd Bank, said in a daily note.

He sees no change in policy rates till April or July next year.

In interest rate futures on the National Stock Exchange , the December contract <N10Z9> implied a yield of 7.9961 percent, above its previous close of 7.8459 percent.

The yield implied in the March contract <N10H0> was at 8.2605 percent, higher than its previous close of 8.2444 percent.

The benchmark five-year interest rate swap was at 6.42/44 percent from previous close of 6.49/53 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))