Updates at market open

By Khushi Malhotra

MUMBAI, Nov 26 (Reuters) - Indian government bonds were steady in early deals on Wednesday, with the 10-year yield anchored below the key 6.50% mark amid heightened bets of a rate cut next week.

The benchmark 10-year yield IN063335G=CC was at 6.4937% as of 10:15 a.m. IST. It ended at 6.4984% in the previous session. Bond yields rise when prices fall.

Bonds rallied over the last two sessions on hopes of a rate cut after the Reserve Bank of India Governor Sanjay Malhotra told local news media that the recent macroeconomic readings have not constrained the room to ease rates.

India's inflation fell to a record low of 0.25% in October. GDP data for July-September, due on Friday, is likely to show the economy grew 7.3%, according to a Reuters poll.

The central bank lowered the repo rate by 100 basis points to 5.5% between February and June, but has held rates since then. At the October meeting, Malhotra had said that there is room to cut policy rates. The rate-setting panel meets on December 3 to 5.

Traders see room for a further rally in bonds if the 10-year yield holds below 6.50%, which is likely to see strong buying interest.

"If 10-year yield closes below 6.50% we may have another 5-7 basis point rally," said Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank.

A strong bullish momentum in U.S. Treasuries is also supporting market sentiment, traders said. The 10-year U.S. Treasury yield has also come off about 13 basis points in the last four sessions on hopes of U.S. rate cuts.

RATES

India's one-year overnight index swap rate rose in early deals after easing below a key level for the first time in seven weeks.

The one-year OIS INR1YMIBROIS=CC was up 1 bp at 5.43%, while the two-year INR2YMIBROIS=CC was not traded yet. The five-year INR5YMIBROIS=CC was flat at 5.7050%.

($1 = 89.2050 Indian rupees)

(Reporting by Khushi Malhotra; Editing by Rashmi Aich and Mrigank Dhaniwala)

((Khushi.malhotra@tr.com))