A central bank buyback of bonds for up to 100 billion rupees ($1.9 billion) also underpinned the market, traders said. Results of the buyback, which would help ease cash availability with banks, will be known after 2:30 p.m. (0900 GMT).
"The aggressive bidding seen in the FII limit auctions and overall the comfort being provided by the central bank is bonds positive," said Dinesh Ahuja, a fixed income fund manager at SBI Funds Management.
The auction of limits entitling foreign institutional investors (FII) to buy up to $5 billion each in government bonds and corporate debt was oversubscribed, four market sources said.
By 11:15 a.m. (0545 GMT), the yield on the new 10-year benchmark bond, was down 3 basis points at 8.71 percent, after moving between 8.70 percent and 8.75 percent.
Total volume on the central bank's electronic trading platform was heavy at 67.55 billion rupees ($1.3 billion), compared with the normal 35 billion to 45 billion rupees dealt in the first two hours of trade.
Sluggish economic data also supported demand for bonds.
India's manufacturing sector expansion slowed in November as factory output grew at its slowest pace in nearly three years although export demand should provide some cheer for factories, a survey showed on Thursday.
Data released after the market had closed on Wednesday showed the infrastructure sector output grew a marginal 0.1 percent in October from a year earlier, sharply slower than the annual growth of 2.3 percent in September.
The pace of growth was the slowest in more than six years, Reuters data showed.
The 10-year yield had dropped 9 basis points on Wednesday after September quarter GDP growth slowed to its weakest pace in more than two years, as high inflation, rising interest rates and crisis-hit global capital markets took a toll.
"Too much of downside to yields from hereon is unlikely as 8.70 seems like a good resistance. I expect a 8.70-8.75 percent range for the day," a senior dealer with a foreign bank said.
The buyback and expectations for foreign demand should help a smooth sale at the government's scheduled auction of bonds for 130 billion rupees on Friday.
The benchmark five-year swap was steady at 7.26 percent, while the one-year rate eased 4 basis points to 7.98 percent.
US Treasury debt prices fell on Wednesday as six top central banks moved to prevent a global credit crunch stemming from Europe, and encouraging US economic data drove investors into equity markets.
Asian shares rallied to two-week highs on Thursday, building on strong global gains after the world's six major central banks moved to tame a liquidity crunch for European banks by providing cheaper dollar funding.