MUMBAI, Aug 14 (Reuters) - The Indian rupee and government bond yields will largely track U.S. Treasuries in a holiday-shortened week, as traders monitor whether the central bank continues to defend the currency and if its forecast for retail inflation will pan out.

India's foreign exchange and money markets are off this Tuesday and Wednesday.

"We have a holiday-shortened week ahead of us. Keep a tab on U.S. (10-year) yields, which are near 4% despite pricing for further rate hikes diminishing," said Kunal Kurani, associate vice president at Mecklai Financial.

The rupee ended at 82.8450 last Friday, shedding 0.12% in a week in which it traded in a narrow 20-paisa range on likely intervention by the Reserve Bank of India. The RBI is expected to keep defending the 82.85-82.90 level.

"We expect the RBI to intervene, which will keep the USD/INR pair in a tight range," ICICI Bank said in a note.

Meanwhile, the benchmark 7.26% 2033 bond yield ended at 7.2021% on Friday. It rose one basis point (bps) last week, after rising an aggregate of 11 bps in the previous two weeks.

Traders expect the benchmark bond yield to be in the 7.16-7.24% zone this week.

The recent climb in yields is due to the spike in U.S. yields and concerns that local retail inflation may jump sharply in the near term, which could force the RBI to maintain higher rates for an elevated period.

Last week, the RBI held rates as expected, but raised its inflation forecast for the current quarter and the fiscal year.

Retail inflation data for July is due on Monday evening, with an acceleration already factored in.

Inflation likely spiked to 6.40% in July on surging food prices as per a Reuters poll, breaching the upper end of the RBI's 2%-6% tolerance band.

This after climbing to 4.81% in June, snapping a four-month downward trend.

Nomura expects the uncertainty on the magnitude and duration of the food price shock to have an impact of three to six months and once that fades, headline inflation will likely begin to converge towards core.

Puneet Pal, head of fixed income at PGIM India Mutual Fund, expects the flatness in the yield curve is likely to continue, with the 10-year bond trading in a range of 7.10% to 7.30% over the next couple of months.

KEY EVENTS:

** India July WPI inflation - Aug 14, Monday (12:00 p.m. IST)

** India July CPI inflation - Aug 14, Monday (5:30 p.m. IST)

** U.S. July retail sales Aug 15, Tuesday (6:00 p.m. IST)

** U.S. July housing starts Aug 16, Wednesday (6:00 p.m. IST)

** U.S. July industrial production Aug 16, Wednesday (6:45 p.m. IST)

** U.S. initial weekly jobless claims week to August. 7 - Aug 17, Thursday (10:00 a.m. IST) (Reporting by Nimesh Vora and Dharamraj Dhutia; Editing by Savio D'Souza)