MUMBAI  Indian government bond yields ended little changed on Friday, tracking overnight movement in U.S. peers, while awaiting the Federal Reserve's policy decision due Wednesday.

The 10-year benchmark 7.26% 2032 bond yield ended at 7.3511%, after closing lower at 7.3526% on Thursday. The yield, however, fell 8 basis points (bps) this week, after remaining largely unchanged for the last two weeks.

Issues in the global banking sector had raised bets of a pause in the Fed's rate hike cycle. However, a majority now expect the central bank to go ahead with a hike after financial aid was extended to embattled lenders Credit Suisse and First Republic Bank.

The Fed's meeting is important at this point, with most participants divided between a 25-bps hike and status quo, said Yogesh Kalinge, vice president at AK Capital Services.

"We saw the European Central Bank hiking rate despite banking sector concerns there. It will be interesting to see what the Fed does. It will ultimately also determine the Reserve Bank of India's action next month," he added.

The 2-year U.S. Treasury note was at 4.0839%, while the 10-year traded at 3.4847%.

Fed funds futures are now pricing in over 80% chance for a 25 bps hike from 65% a day before.

India's debt market could see a limited impact of the recent turmoil, the head of Asian fixed income at First Sentier Investors said on Friday.

A decision of the RBI's monetary policy committee is due Apr. 6. India's headline retail inflation was above the central bank's target for the second consecutive month in February, increasing bets of another hike next month.

In the near term, the benchmark yield is expected to move in the 7.30%-7.40% band, but a pause by the Fed could lead to a rally in bond prices pushing yields below 7.30% levels, dealers said.

(Reporting by Bhakti Tambe; Editing by Sohini Goswami)