Bonds snap 3-day gains

Indian government bonds fell on Friday on profit-booking but still managed to book their biggest weekly gain in a month as investors cheered the central bank's move to cut an emergency overnight rate by a hefty 50 basis points.

The Reserve Bank of India is also injecting short-term liquidity and sold on Friday its first-ever seven-day variable rate term repos at a cut-off of 8.80 per cent.

RBI Governor Raghuram Rajan on Thursday said India was not nearly as troubled as investors fear and stressed the government had plenty of money to meet obligations.

Traders said industrial output data due out after market close and inflation data on Monday would set the tone in coming days.

"The markets are responding more to liquidity enhancement measures and ignoring the medium term orientation of monetary policy, so this may not sustain," said Rupa Rege Nitsure, chief economist with Bank of Baroda in Mumbai.

The benchmark 10-year government bond yield ended up seven basis points on the day at 8.49 per cent, but was down 12 basis points in the week, the sharpest fall since September 6.

The RBI slashed the Marginal Standing Facility (MSF) to nine per cent on Monday, dialling back further extraordinary measures first implemented in mid-July to shore up a faltering rupee.