Indian markets slip after U.S. Fed's 'less dovish' comments

By Suvashree Choudhury and Arnab Paul

MUMBAI (Reuters) - The rupee and stocks weakened early on Thursday, tracking Asian peers after the U.S. Federal Reserve gave a 2019 rate outlook that traders called "less dovish" than they expected.

Government bonds also fell, halting a two-day advance after India's monetary policy committee sounded hawkish in minutes released on Wednesday of its Dec. 5.

The rupee was at 70.60 to the dollar in early trade after opening at 70.68 and weaker than Wednesday's close of 70.39. The 10-year benchmark bond yield was at 7.27 percent from the previous close of 7.22 percent.

"The Fed sounded less dovish and went ahead with the rate hike," said a chief forex dealer at a large state-run bank.

"There could be capital outflows from India after the Fed's statement."

Some dealers expected the Fed to see only one more hike in its guidance for 2019, rather than two.

Markets are expected to be volatile during the day with the rupee seen in 70.55-70.90 to the dollar while bonds are likely to move in a 5 basis point range, traders said.

The broader Nifty was down 0.45 percent at 10,918.45 as of 0416 GMT, dragged by financials such as Housing Development Finance Corp Ltd, which was down 1.5 percent. The benchmark Sensex was 0.44 percent lower at 36,324.45. Through Wednesday both indexes had risen for seven straight sessions.

After weeks of market volatility and calls by President Donald Trump for the Federal Reserve to stop raising interest rates, the U.S. central bank did it again, and stuck by a plan to keep withdrawing support from an economy it views as strong.

India's monetary policy committee sounded cautious on inflation and preferred to wait for more data to see for how long price pressure and growth momentum would remain soft, according to minutes of its Dec. 5 meeting.

Bond traders also booked profit after the sharp rally earlier this week, following soft crude prices and easing inflation.

(Reporting by Suvashree Dey Choudhury in MUMBAI and Arnab Paul in BENGALURU; Editing by Rashmi Aich and Richard Borsuk)