India?s bonds gained for a fourth day as a decline in oil prices from a record tempered concern inflation will acc4elerate.

The advance pushed 10-year yields to the lowest in a week as crude oil in New York fell for a third day, taking the decline to 9 percent from a record on August 1. India imports three-quarters of its energy requirements.

?The drop in oil prices come as a major relief for the bond market,” said Ashish Vaidya, head of interest-rate trading at HDFC Bank Ltd. in Mumbai.

The yield on the benchmark 7.49% note due April 2017 fell 3 basis points, or 0.03 percentage point, to 7.82% in Mumbai, according to the central bank’s trading system. The price, which moves inversely to the yield, rose 0.18, or 18 paise per Rs 100 face value, to 97.77.

India’s inflation has averaged 5.1% since April 1, when the current fiscal year began. The rate measured 4.36% in the week ended July 21, according to the latest government data. The Reserve Bank of India wants to keep the rate of price gains capped at 5%.

Bonds pared gains on concern the central bank will drain surplus cash from the financial system, leaving investors with less money to buy debt.

?The Reserve Bank is still not comfortable with excess liquidity and may take steps to drain money,? said Vineet Malik, head of interest-rate trading at HSBC Holdings Plc in Mumbai.

The central bank asked lenders on July 31 to put more cash aside as reserves, effectively draining money.

Banks must keep 7% of deposits as reserves from August 4, from 6.5%. The move absorbed as much as $160 billion . The Reserve Bank will sell Rs 140 croreof two-year debt on Wednesday.

Bonds also gained as rising stock prices eased concern overseas funds will reduce investments in the country, causing capital outflow. The benchmark Bombay Stock Exchange?s Sensitive Index rose 1 percent today after falling 1.6% on Monday. ?The return of stability to equity markets suggests there may not be fund outflows that may tighten liquidity,? HDFC?s Vaidya said. India’s rupee rose on speculation overseas investors will return to local shares as stock markets gained following decline.The currency has climbed 0.8% this quarter as overseas purchases of Indian equities exceeded those for the whole of 2006.