UPDATE 1-India's 10-yr yield hits 7-month low on policy pivot bets -traders

(Updates with more details) By Dharamraj Dhutia MUMBAI, April 24 (Reuters) - Indian government bond yields plunged on Monday, with the benchmark 10-year bond yield dropping to its lowest level in more than seven months, as global and domestic monetary policy pivots support sentiment, market participants said. "There are views that the Federal Reserve is likely to pause (raising interest rates) after May, while the Reserve Bank of India is set to pause for a prolonged period, which should be followed by some economic slowdown," said Aneesh Srivastava, chief investment officer of Star Health and Allied Insurance. "These factors are supporting bond buying." The benchmark 7.26% 2033 bond yield eased to 7.1163%, its lowest level since Sept. 13, on the day and has now dropped by eight basis points in the last two sessions. "The current rally is driven by traders and foreign banks and is purely a trading call and since there are no immediate negatives, people are going long," said Mandar Pitale, head of treasury at SBM Bank (India). "Since key technical levels were broken, we saw an increase in buying activity." The 7.18% was a key level and its break gave the rally additional legs, bond market participants said. The major purchases were by foreign banks, said market participants, and that has led to a sharp decline in yields as they remained buyers on Monday as well. These banks have net bought bonds worth 102 billion rupees ($1.25 billion) in the last four trading sessions to Friday, data from Clearing Corp of India showed. Currently, the Fed is expected to hike rates by 25 basis points next week, while the Reserve Bank of India unexpectedly maintained status quo on rates earlier in the month. And that could be a prolonged pause given India's easing inflation, while over in the United States, the Fed may reverse its rate hikes soon due to worries about an economic slowdown. Still, Indian bonds may consolidate around current levels, which is also a strong technical zone, until another major trigger and as continuous supply weighs, traders said. "With a regular supply of 10-year and 14-year bonds every alternate week, the yields may not fall much from current levels," SBM Bank's Pitale said. "There may be some consolidation and we could see some reversal."

($1 = 81.8640 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Sonia Cheema and Savio D'Souza)