MUMBAI, July 18 (Reuters) - Indian government bond yields are expected to trend largely unchanged in early trading on Thursday, as traders await a fresh debt supply on Friday and the federal budget announcement on Tuesday.

The benchmark 10-year yield is likely to move in a 6.95%-6.99% range, after closing at 6.9632% in the previous session, a trader with a private bank said. Indian markets were closed on Wednesday for a local holiday.

"Buying from foreign banks led the yields to slip to fresh lows on Tuesday, but for the benchmark yield 6.95% levels is seen as a hard stop for now, especially as we have supply tomorrow," the trader said.

New Delhi aims to raise 310 billion rupees ($3.71 billion) through a sale of bonds, which includes 200 billion rupees of the benchmark note.

The federal government will announce its budget on July 23, and focus is on the fiscal deficit target and gross borrowing figure for the ongoing financial year.

India has room to cut gross market borrowing by 500-750 billion rupees following a better-than-estimated surplus transfer from the central bank and strong revenue collections, Neeraj Gambhir, head of treasury at Axis Bank said.

However, a Reuters poll found that the government remains committed to upholding pre-election borrowing and spending targets, despite the ruling Bharatiya Janata Party losing its majority in this year's national vote.

Median forecasts in the poll put the fiscal deficit target at 5.1% of gross domestic product and gross borrowing at 14.13 trillion rupees, exactly the same as the interim budget announced in February.

U.S. yields fell to a four-month low on Wednesday after top Federal Reserve officials cited progress in inflation easing closer to their 2% target, setting the stage for a likely first interest rate cut in September.

The fall was capped on rising bets of Donald Trump winning the presidential race as analysts expect this would potentially lead to stronger growth, higher inflation and more debt supply.

KEY INDICATORS:

** Brent crude futures were 0.3% lower at $85.40 per barrel, after rising 1.6% in the previous session

** Ten-year U.S. Treasury yield at 4.1750%, two-year yield at 4.4548%

** Reserve Bank of India to auction treasury bills worth 200 billion rupees ($1 = 83.5870 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Varun H K)