Indian bond yields up sharply on rate rise view

(Updates to close)

By V. Ramakrishnan

MUMBAI, June 9 (Reuters) - Indian federal bond yields climbed steeply on Monday to their highest in a year as investors fretted that record oil prices could push up inflation further and lead to an increase in official interest rates.

Traders said expectations of tighter cash conditions ahead of advance corporate tax payments by the end of this week also dampened sentiment.

The 10-year benchmark bond yield <IN082418G=CC> ended at 8.28 percent, 5 basis points higher than Friday's close. In early trade, it touched 8.31 percent, its highest since mid-June 2007.

"Sentiment is bearish as inflation is high and probably another round of tightening is due," a dealer with a state-owned bank said.

Annual inflation hit a 3-½ year high of 8.24 percent on May 24, and analysts expect data later this month to show it rose to 13-year highs above 9 percent in early June as last week's increase in state-set fuel prices works through the economy.

The main short-term lending rate has been at 7.75 percent since March 2007, with the central bank using increases in banks' reserve requirements to tighten policy since then. The next monetary policy review is on July 29, but the central bank can, and does, change policy settings in between meetings.

U.S. light, sweet crude for July delivery CLc1 hit a record high above $139 a barrel on Friday. India imports about 70 percent of its oil needs. (Editing by John Mair)