MUMBAI, Jan 31 (Reuters) - Indian government bond yields are expected to dip in early trade on Wednesday as U.S. yields continue to see a downward momentum, even as the focus remains on the domestic federal budget.

India's benchmark 10-year yield is expected to hover in the 7.14%-7.18% range, following its previous close at 7.1570%, a trader with a primary dealership said.

"Market is completely bullish going into the budget and there is no expectation of any negatives, which can be clearly reflected in the positioning, and to add to that, we are now witnessing a strong downtrend in Treasury yields," the trader said.

India is due to announce the budget for the financial year starting April 1 on Thursday. The government may keep its gross market borrowing for 2024/25 close to the current fiscal year's level, two sources told Reuters.

India may target gross borrowing for the next financial year at between 15 trillion rupees ($180.46 billion) and 15.50 trillion rupees, against a planned 15.43 trillion rupees this fiscal year, the sources said.

Indian funds, insurers and banks have increased positions in longer-duration bonds in anticipation of the budget being fiscally conservative with no pre-election spending surprises.

DBS Bank expects the fiscal deficit for the next financial year to be pegged at around 5.3% of GDP, enroute to the 4.5% of GDP by FY26 glide path.

"Markets are hopeful of a lower or similar borrowing number for FY25 compared to this year, with the demand mix likely to find support from domestic investors and an incremental increase in foreign interests," Radhika Rao, senior economist at DBS, said in a note.

U.S. yields eased further in Asian hours on Wednesday, and with the 10-year yield closing in around the 4% handle as investors head into the Federal Reserve monetary policy decision due just before India's budget announcement.

The odds of a U.S. rate cut in March now stand at around 41%, down from 88% last month, according to the CME's FedWatch Tool. KEY INDICATORS: ** Brent crude futures 0.5% lower at $82.50 per barrel, after rising 0.6% in the previous session ** 10-year U.S. Treasury yield at 4.0242%, two-year yield at 4.3241% ** RBI to auction Treasury bills worth 270 billion rupees ($1 = 83.1220 Indian rupees) (Reporting by Dharamraj Dhutia Editing by Sonia Cheema)