The yield on the 10-year benchmark bond was down 3 basis points (bps) at 8.30 percent, after rising to 8.34 percent early matching Monday's peak that was its highest since Aug. 16.

Total volume on the central bank's electronic trading platform was moderate at 27.25 billion rupees ($592 million).

"Foreign banks have been major sellers in recent days, so some short-covering is seen from them. We also have GDP data which might be weaker-than-expectations and globally too the risk-off might set in again," a senior trader at a private bank said.

The Indian economy probably grew an annual 7.6 percent in the quarter through June, slowing from the previous quarter's 7.8 percent growth, the median forecast from a poll of 28 economists showed.

Traders expect any number below 7.5 percent would spark a 3-5 bps drop in bond yields. The market will be closed on Wednesday and Thursday for local holidays.

Traders said a drop in US yields in Asian trade also helped sentiment for bonds.

The 10-year benchmark US bond yield was at 2.23 percent, down 5 bps from late New York trade on Monday, when it had risen 9 bps.

Brent crude rose for a sixth straight session on Tuesday, buoyed by strong data from the United States that allayed fears the world's top oil consumer was sliding back into recession and a landmark bank merger deal in Greece.

The benchmark five-year Indian overnight indexed swap rate and the one-year rate both rose 1 basis point each, to 7.00 percent and 7.80 percent, respectively.

Copyright Reuters, 2011