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MUMBAI - The Indian rupee and bonds weakened on Friday as global markets were rocked overnight by a surge in U.S. treasury yields to their highest levels since the pandemic began.

The partially convertible rupee fell 1.5% on day to close at 73.4650 per dollar, posting its biggest single-day fall since March 23 last year. The Indian currency fell 1.1% on the week, having risen for the previous six weeks on the back of India's improved economic outlook and broad dollar weakness.

Rahul Gupta, head of research-currency at Emkay Global Financial Services said the overall picture can be dire for the rupee while projecting the dollar/rupee pair to trade above 73.25 levels in the near-term, with the rupee likely to run into resistance if it strengthened to the 72.50 level.

U.S. Treasuries became a focal point for global markets after traders aggressively moved to price in earlier monetary tightening than signalled by the U.S. Federal Reserve and peers, due to a combination of improving prospects for economic recovery and concerns over rising inflation.

Almost all emerging market stock indices shed around 3-4% while bonds and currencies tumbled.

India's benchmark 10-year bond yield rose to 6.24%, its highest since May 13. It ended trading at 6.23%, up 5 basis points on the day.

"It is a myth that RBI can draw any credible “line in the sand” with respect to the level of the 10-year bond yield," said Suyash Choudhary, head of fixed income at IDFC Asset Management.

"Hence RBI's efforts, including the governor's appeal for an orderly evolution of the yield curve, should be interpreted as the central bank intervening to address the pace of change rather than control the direction of yields," he added.

India's central bank governor told investors on Wednesday to trust the bank to manage the government's massive borrowing programme, after the bond market suffered a sustained sell-off following the higher than expected borrowing announcement earlier this month.