MUMBAI, June 14 (Reuters) - Indian government bond yields are expected to dip marginally in early trading on Friday, tracking U.S. yields, but the decline is likely to be limited as market awaits fresh debt supply via the weekly auction later in the day.

India's benchmark 10-year yield is likely to move in a 6.95%-7.00% range, following its previous close of 6.9872%, a trader with a state-run bank said.

New Delhi aims to raise 340 billion rupees ($4.07 billion) through the sale of bonds, which includes a new seven-year paper.

"There could be some continued momentum from yesterday's trend where we saw decent buying in the last hour or so, but after the initial moves, market would focus on auction demand," the trader said.

U.S. yields fell further on Thursday, with the 10-year yield hitting over two-month lows, and stayed lower in Asian hours after data showed a cooling of the labour market and price pressures, supporting bets of rate easing from the Federal Reserve.

The producer price index (PPI) for final demand dropped 0.2% in May after advancing 0.5% in April, and below the 0.1% increase forecast by economists polled by Reuters.

U.S. yields extended decline even as the Fed slashed its forecast to only one rate cut of 25 basis points in 2024, down from three projected in March.

Meanwhile, the futures market is pricing in 50 bps rate cut this year, according to the CME FedWatch tool.

Underlying investor sentiment remains supportive as the deadline for inclusion of Indian bonds in JPMorgan's emerging market debt index nears.

A majority of clients that follow are now registered to trade directly in Indian government bonds, Gloria Kim, global head of index research at J.P. Morgan told Reuters. She expects inflows to be between $20 billion and $25 billion following the index inclusion. KEY INDICATORS: ** Brent crude futures 0.4% lower at $82.40 per barrel, after rising 0.2% in previous session ** Ten-year U.S. Treasury yield at 4.2694%, two-year yield at 4.7243%

** India to sell sovereign bonds worth 340 billion rupees ** RBI to set underwriting fees for 340 billion rupees of sovereign bond auction ** RBI to conduct 14-day variable rate repo for 750 billion rupees ($1 = 83.5510 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Eileen Soreng)