MUMBAI, Aug 25 (Reuters) - Indian government bonds rose

on Monday after a sharp decline last week, as sentiment improved

following the U.S. Federal Reserve Chair's hint at an interest

rate cut next month.

The benchmark 10-year bond yield was at

6.5422% as of 10:00 a.m. IST, after ending at 6.5510% on Friday.

The yield jumped 15 basis points last week, its biggest rise in

over three years.

Bond yields move inversely to prices.

"Had it not been for fiscal slippage fears, the 10-year bond

yield could have easily touched 6.50%, but because of a lack of

clarity, bulls are not going all out," a trader with a primary

dealership said.

U.S. yields sank on Friday after Fed Chair Jerome Powell

alluded to a possible interest rate cut at the central bank's

policy meeting next month, saying that risks to the job market

were rising. However, Powell also noted inflation remained a

threat and that a decision was not set in stone.

After Powell's comments, bets of a 25-basis-point rate cut

in September rose to nearly 90%, according to the CME FedWatch

Tool.

Meanwhile, the domestic market remains concerned about the

proposed cuts to India's Goods and Services Tax (GST), including

moving to a two-rate structure of 5% and 18%, scrapping the 12%

and 28% rates.

A state ministers' panel has backed the new structure,

further fuelling fears of fiscal slippage that could nudge the

government to undertake additional borrowing.

The GST council will meet on September 3-4 to discuss these

changes.

RATES

India's overnight index swap rates eased amid thing trading

volume, tracking a decline in Treasury yields.

The one-year OIS rate was not yet traded

after ending at 5.5250% on Friday. The two-year OIS rate

and the liquid five-year OIS rate

were 2 bps lower each at 5.46% and 5.72%.