INDIA BONDS-Bond yields seen tad down as oil prices fall further

MUMBAI, Jan 5 (Reuters) - Indian government bond yields are expected to open marginally lower on Thursday, tracking a further fall in oil prices that could aid inflation outlook.

The benchmark 10-year yield is likely to move in a 7.30%-7.34% range, a trader with a private bank said. The yield ended at 7.3212% on Wednesday.

There are hardly any factors that could move bond yields in any major way currently, so they're likely to fall slightly based on movement in oil prices, the trader said.

Oil prices fell further on Wednesday, with the benchmark Brent crude contract posting its biggest single-day drop in four months. Investors are worried about fuel demand as the global economy slows and COVID-19 cases grow in China.

The benchmark contract crashed by 5.2% on Wednesday, after falling by 4.4% on Tuesday. It has posted the steepest percentage loss in the first two trading days of any year for over three decades.

Data from China showed that while no new coronavirus variant has been found there, the country has under-represented how many people died in its recent, rapidly spreading outbreak, World Health Organization officials said.

India is one of the largest importers of the commodity, and oil prices have a direct impact on retail inflation. The data for December is due next week and comes after the reading eased below 6% in November, a first in 11 months.

The Reserve Bank of India is mandated to keep inflation around 4%, with a tolerance level of 200 basis points (bps) on either side. The central bank hiked the repo rate by 225 bps in 2022 to 6.25% in its fight against inflation.

"We may not see any wide trading range until the union budget, while inflation reading may act as the near-term trigger," said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership.

The union budget is likely due on Feb. 1, followed by the central bank's monetary policy on Feb. 8. KEY INDICATORS: ** Brent crude futures up 1% at $78.70 per barrel, after falling nearly 10% in last two sessions ** 10-year U.S. Treasury yield was at 3.7107% and the two-year note at 4.3887% (Reporting by Dharamraj Dhutia; Editing by Janane Venkatraman)