Most were building positions in anticipation of a good response to the auction, they said. The Reserve Bank of India (RBI) will auction the 12.29 per cent 2010 bonds worth 50 billion Rupees on Tuesday, the first of the government's borrowing through dated securities for the year.

The rally had been spurred by the low auction amount too, dealers said.The market had been expecting the government to mop uparound 100 billion Rupees amid the easy liquidity following the first phase of the cash reserve ratio cut effective from Saturday and other coupon flows.

The 11.99 percent 2009 bond was quoted at Rs 110.00/10 compared with Saturday's 109.60/70.

The 12.29 per cent 2010 bond, to be re-issued on Tuesday,was traded at 111.95 Rupees, up 15 paise (0.15 Rupees) since the morning. Dealers said liquidity concerns had kept the rally short, with the market also having to ensure adequate funding for the several holidays this week.

Banks in several centres are shut on Wednesday, Friday and Saturday for festival holidays. Call money rates closed at 6.8-7.0 per cent on Monday.