* 10-year bond yield ends down 11 bps at 8.85 pct
* India's largest life insurer likely bought heavily at debt sale-traders
* 10-year yield unlikely to go much further down-Kotak Mahindra Bank (Adds closing levels, milestones)
MUMBAI, April 17 (Reuters) - India's 10-year benchmark bond yield fell the most in a single-day in three months on Thursday, after the central bank fully sold 200 billion rupees ($3.31 billion) worth of bonds on offer, accomplishing the country's biggest debt auction.
The 10-year benchmark bond yield ended down 11 basis points at 8.85 percent, the biggest single-day fall since Jan. 20 when it had fallen by a similar quantum.
The cut-offs for the auction were also better than expected, indicating healthy demand. Concerns about how India would accomplish the debt sale had hit bonds this week, while holidays on Monday and Friday left only three trading sessions.
Still, four dealers cited widespread market speculation that Life Insurance Corp had bought a significant chunk of the debt at the auction. Details on buyers are not publicised, and LIC was not immediately reachable for comment.
However, traders added bonds would likely remain under pressure given the debt supply will continue, while investors are also likely to stay cautious ahead of the outcome of the elections next month.
These two factors will likely remain key in the markets as the Reserve Bank of India will not set policy until early June.
"There could be some trading opportunity to make profits but I am not too sure of buying continuing because the (RBI's) monetary policy stance is still status quo and there is not much scope for the 10-year bond yield to further come down," said Mohan Shenoi, treasurer at Kotak Mahindra Bank.
Traders also suspect the RBI bought significant amount of bonds on Tuesday after data from the electronic trading platform showed the "Others" category, which RBI is a part of, showed net purchases of 32.77 billion rupees.
For details on cut-offs, see
After Thursday's auction, 3.16 trillion rupees worth of gross borrowing remains during April-September. However, the figure may change after a government is elected next month.
Earlier on Thursday, Standard and Poor's said it may upgrade India's outlook if the government that is elected next month addresses some of the country's fiscal and economic challenges through steps such as passing a goods and services tax.
In the overnight swaps market, the benchmark five-year rate fell 7 basis points to end at 8.44 percent, while the one-year rate ended down 2 basis points at 8.58 percent.
($1 = 60.3550 Indian Rupees) (Reporting by Neha Dasgupta; Editing by Rafael Nam, Anupama Dwivedi and Prateek Chatterjee)
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