10-year benchmark bond yield was at 8.90 percent, unchanged from Wednesday's close, after moving in a 8.88-8.91 percent range so far.

Total volumes on the central bank's electronic trading platform were slightly lower at 34.05 billion rupees ($691 million) compared with 35 billion to 45 billion rupees usually dealt in the first two hours of trade.

"Market is awaiting the weekly inflation data for cues. Euro zone concerns however are is continuing to support sentiment for bonds here," said Debendra Dash, a fixed-income dealer with Development Credit Bank.

Asian shares, the euro, commodities and the Australian dollar all fell on Thursday as fears that Europe's debt crisis could unleash financial chaos prompted investors to shed riskier assets in favour of the relative safety of the dollar.

Traders said there was mild profit-booking in early trade following the fall in yields on Wednesday with supply concerns also hurting.

"The auction tomorrow will be the key to further direction on bonds. Supply concerns domestically and the US talking of additional stimulus which would lead to higher inflationary pressures are seen holding bonds in a range," the head of fixed income trading at a private bank said.

"I see the current 10-year paper in 8.87 to 8.93 percent range until the auction results," he added.

The Reserve Bank of India said on Monday the government will sell 130 billion rupees of bonds on Friday, including 60 billion rupees of a new 10-year bond.

The Fed, in a statement following its policy meeting, said economic growth strengthened somewhat in the third quarter, although it did flag risks to growth that appeared to leave the door open for further monetary easing.

The benchmark five-year Indian swap rate was down 4 bps at 7.35 percent and the one-year rate was down 2 bps at 8.17 percent.

Copyright Reuters, 2011