MUMBAI, May 2 (Reuters) - Indian government bond yields and the rupee will eye the U.S. Federal Reserve's policy decision as well as the jobs data for direction in a holiday-truncated week.

Indian fixed income and currency markets were shut on Monday and will remain shut on Friday.

Last week, the rupee rose 0.3% at 81.8250 to the U.S. dollar, primarily helped by inflows, according to traders.

This week, the Fed will decide during U.S. trading hours on Wednesday whether another interest rate hike is needed in the face of concerns over growth outlook. Data released last week showed the U.S. economy slowed more than expected in the March quarter.

Still, futures have priced in a 25 basis points rate hike by the Fed with inflation well above the central bank’s target.

Post the Fed meeting, the U.S. monthly jobs report due on Friday will help investors gauge how the Fed rate hikes are impacting the labor market. That market has held up well so far and another report indicating that could prompt the Fed to hike again in June.

Apart from this, the rupee will also be looking at Chinese yuan.

One needs to keep an eye on the yuan with USD/CNH beginning to move higher, Kunal Sodhani, vice president at Shinhan Bank, said. "For USD/INR, 81.55 acts an immediate support followed by 81.35 while resistance is at 82.35."

Meanwhile, India's benchmark bond yield ended at 7.1196% on Friday.

For the month, the benchmark bond yield dropped 20 bps, its biggest such move in over three years, on bets of policy pivot, while foreign banks remained large buyers.

Traders expect the benchmark yield to move in the 7.05% to 7.15% range this week.

"Gradually, the yield of the 10-year benchmark bond is expected to ease towards 7% and once rate cut expectations are built, we will see 10-year trading below 7% mostly in 2024," said Pawan Somani, head of fixed income at Knight Fintech Research.

"Therefore, the longer end of the yield curve is seeing good buying as risk reward looks favourable at current juncture."

The RBI had surprised markets by holding the key lending rate at 6.50% on April 6, going against expectations of a 25 basis point hike.

With easing inflation bets, market participants expect the central bank to remain on a prolonged pause.

Traders will also focus on demand for the debt auction, as New Delhi is scheduled to sell benchmark 2033 note this week.

At a similar auction of the 10-year note on April 21, there was stronger-than-expected demand which propelled a rally in prices over the last two weeks.

KEY EVENTS: • U.S. March Factory orders - May 2, Tuesday (7:30 p.m. IST) • India April S&P Global Services PMI - May 3, Wednesday (10:30 a.m. IST) • U.S. Fed Funds target rate - May 3, Wednesday (11:30 p.m. IST) • U.S. week to April 24 - initial jobless claim - May 4, Thursday (6:00 p.m. IST)

• U.S. April non-farm payrolls - May 5, (6:00 p.m. IST)

• U.S. April unemployment rate - May 5, (6:00 p.m. IST) (Reporting by Dharamraj Dhutia and Nimesh Vora; Editing by Varun H K)