Updates at market open

By Khushi Malhotra

MUMBAI, May 14 (Reuters) - Indian government bonds were boxed in a narrow range early Thursday, with traders avoiding large bets as U.S. President Donald Trump meets China's Xi Jinping, which could influence the trajectory of the Iran war.

Trump is expected to seek Xi's help in resolving the costly and unpopular war with Iran this week. Analysts said Xi may nudge Tehran back toward negotiations but is unlikely to cut economic support for its key Middle East partner.

Brent crude futures LCOc1 were last up 0.4% at $106.05 a barrel. Elevated oil prices could push up oil-import-dependent India's inflation, pressure the rupee and widen the current account deficit.

The benchmark 6.48% 2035 bond yield IN064835G=CC hovered at 7.0565% at 11:03 a.m. IST, after settling at 7.0493% on Wednesday.

The 10-year yield has failed to close above the key 7.05% level in the last few sessions, prompting some early buying and limiting further upside.

The rupee hit a fresh record low of 95.8875 on Thursday, weighed by sustained foreign portfolio outflows, adding to current- and capital-account strains.

"There is growing anxiety around oil supply shortages across India and a likely hike in petrol and diesel prices," a private bank trader said.

India earlier raised import duties on bullion to curb the trade deficit.

Barclays economists said they had previously raised their FY27 CPI inflation forecast by 50 basis points to 4.5%, assuming a pump-price increase. They added the bullion duty hike before a fuel-price hike could signal a delay in such a move.

RATES

Overnight index swaps surged in early trade as rising oil prices weighed on sentiment.

The one-year swap INR1YMIBROIS=CC rose 2.75 basis points to 6.1150%, the two-year INR2YMIBROIS=CC was up 4.5 bps at 6.34%, and the five-year INR5YMIBROIS=CC jumped 1.75 bps to 6.68%.