Indian bond yields, swaps up; $2.6 bln sale eyed

* Cut-off yield at sale to set trend

* Next week's inflation, factory data awaited

* S. Korea rate hike dampens sentiment (Updates to mid-morning)

MUMBAI, July 9 (Reuters) - Indian federal bond yields rose on Friday as traders trimmed positions ahead of a $2.6 billion debt sale, with sentiment also dampened after South Korea's central bank lifted interest rates.

At 10:28 a.m. (0458 GMT), the yield on the benchmark 10-year bond IN078020G=CC was at 7.62 percent, up 2 basis points from Thursday's close.

Volumes were low at 9.5 billion rupees ($203 million) on the central bank's trading platform.

The one-year swap INRAMONMI1Y= was at 5.71 percent, up three basis points.

The benchmark five-year swap rate INRAMONMI5Y= rose four basis points to 6.81 percent.

"The market is weak because of the auction today and the Korean rate hike," said a senior trader with a foreign bank.

The Bank of Korea raised interest rates on Friday for the first time since the outbreak of the financial crisis, saying inflation was likely to pick up while the economy was set to sustain solid growth. [ID:nTOE66801F]

India is auctioning 40 billion rupees of 7.17 percent bonds maturing in 2015, 50 billion rupees of 7.80 percent 2020 bonds and 30 billion rupees of 8.32 percent 2032 bonds on Friday. [ID:nMBI006988]

Traders said the result of the auction, expected after 2:30 p.m. (0900 GMT), would indicate market appetite and the central bank's comfort level, ahead of inflation and factory output data next week and expectations for another quarter point rate hike on July 27.

"Bond yields may not rise much today but if global equities and commodities continue their rally then the 10-year yield could gradually rise towards 7.75 percent," the trader said.

Asian stocks climbed for a second day and the euro held near two-month highs on Friday while oil headed for a five-percent weekly gain, the biggest since May. [MKTS/GLOB] [O/R] ($1 = 46.8 rupees) (Reporting by Neha D'silva; Editing by Ranjit Gangadharan)