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The benchmark BSE index closed up 0.72 percent and the broader NSE index ended 0.82 percent higher after the central bank lowered minimum bond holding requirements for lenders to spur investment, sending blue-chips such as mortgage lender HDFC and Tata Motors higher.
India's new 10-year bond yield ended up 11 basis points at 8.61 percent after the central bank's plan to cut the mandatory statutory liquidity ratio sparked fears about new supply at a time when the country is already in the midst of a big borrowing spree.
The existing 10-year benchmark bond yield also closed 10 basis points higher at 8.80 percent.
The partially convertible rupee ended stronger at 60.8450/8550 per dollar versus Monday's close of 60.93/94, as gains in domestic shares after foreign investors turned buyers following a three-day selling streak helped, and overcoming some volatility earlier in the session.
The benchmark five-year swap rate closed up 13 bps at 8.02 percent, while the one-year rate ended up 10 bps at 8.43 percent.
India's cash rate ended at 7.25/7.30 percent against Monday's close of 7.00/7.05 percent.
---------------------- Double click on codes in Reuters MIOR/MIBOR NSE MIBID/MIBOR Reuters Corporate Bond Yield/Spread For Reuters Benchmarks (Compiled by Dipika Lalwani; Editing by Biju Dwarakanath)