Indian bond yields seen lower; cbank steps eyed

MUMBAI, Dec 5 (Reuters) - Indian federal bond yields are seen falling in early trade on Friday as expectations build the central bank will soon cut interest rates, although upcoming corporate tax payments could see liquidity tighten.

* The 10-year federal bond yield IN082418G=CC ended at 6.84 percent, 13 basis points off its day's low of 6.71 percent, which was its lowest since April 2005. It had closed at 6.78 percent on Wednesday.

* A senior government official said on Thursday the central bank was likely to lower rates as part of a stimulus package the authorities were preparing.

* However, comments from central bank Governor Duvvuri Subbarao, who said there were a number of measures other than rate adjustments to stimulate demand conditions in the economy, had prompted bond dealers to book profits. [ID:nDEL140403]

* Subbarao will address a news conference at noon (0630 GMT) on Saturday.

* Expectation of some tightening of liquidity next week due to the advance tax outflows is also seen affecting sentiment for bonds. (Reporting by Swati Bhat)