MUMBAI (Reuters) - Indian government bond yields ended the first trading session of the New Year with a marginal uptick after a higher-than-expected borrowing plan by states hurt demand, while traders await a pickup in volumes.

The 10-year benchmark bond yield closed at 7.1969% on Monday, after ending at 7.1754% in the last session of 2023.

The benchmark bond yield ended lower for the second consecutive month in December and closed the year with a drop of 15 basis points (bps).

"The state debt supply calendar has been surprising for the market as we were not expecting such a high number, which has led to some correction in prices," said Nandan Pradhan, deputy general manager, treasury, at Cosmos Bank in Mumbai.

Indian states aim to raise a record 4.13 trillion rupees ($49.62 billion) through the sale of bonds in the January-March quarter.

The quantum is higher than almost every market estimate. Traders had expected a borrowing of around 3.50 trillion rupees in the last quarter of the fiscal year, ending March 31.

Market participants will keep an eye on demand from state-run banks as well as further foreign inflows, which could keep a check on any major rise in yields.

Last week, state-run banks posted their biggest weekly government bond purchases to wrap up 2023 and treasury officials anticipate banks will be large buyers this month as well.

Foreign investment saw a remarkable jump in the last three months of 2023 as the inclusion of Indian bonds in JPMorgan's indexes boosted inflows to a six-year high.

Traders also anticipate the bond yield curve to "bull steepen" in 2024, on expected interest rate cuts by the U.S. Federal Reserve and the Reserve Bank of India. ($1 = 83.2375 Indian rupees)

(Reporting by Dharamraj Dhutia; Editing by Sohini Goswami)