By Swati Bhat
MUMBAI (Reuters) - Bonds and the rupee currency ended weaker on Thursday, retreating from earlier one-week highs, on scepticism about whether the new government of Prime Minister Narendra Modi can achieve its ambitious fiscal deficit target.
Bond prices and the rupee had initially rallied after Finance Minister Arun Jaitley stuck to the fiscal deficit target of 4.1 percent of gross domestic product for this fiscal year set by the previous government.
The government also revised upwards the market borrowing to a gross 6 trillion rupees ($100.42 billion) from 5.97 trillion rupees in the interim budget, well within analysts' expectations.
But some of the optimism faded as Moodys' Investors Service and Fitch Ratings expressed doubts whether the government could meet that target, pointing to the lack of specific details about ways to meet spending and revenue projections.
"The budget was a bit of a disappointment in terms of no clear roadmap for reduction of subsidies or how the tax revenue will be achieved," said Bekxy Kuriakose, head of fixed income at Principal PNB Asset Management.
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The benchmark 10-year bond yield at one point fell as much as 9 basis points on the day to 8.64 percent, its lowest since July 3. The yield closed up 4 basis points on the day, at 8.77 percent.
The partially convertible rupee earlier rose as high as 59.57 per dollar, its strongest since July 3. The unit ended at 60.19/20, versus the previous close of 59.75/76, down 0.8 percent on the day, for its biggest single-day fall since June 13.
Traders said there was also some paring of positions ahead of Friday's 150-billion-rupee ($2.49-billion) bond auction.
"Inflation will be key, going ahead and supply will remain a concern," Kuriakose added.
In his speech, Jaitley announced a slew of proposals, including raising the limit on foreign direct investment in defence and insurance ventures to 49 percent from 26 percent, which is expected to help the rupee in the medium- to longer- term.
The tight fiscal deficit targets are expected to help keep a lid on prices, a critical factor in a country where consumer price inflation was 8.28 percent in May, and could potentially allow the Reserve Bank of India some room to cut interest rates.
However, Moodys' and Fitch said the government would need to provide more details of how it would meet the fiscal deficit target.
"From a ratings perspective, it is mildly positive to see there's a roadmap, but the lack of details gives us pause," Moody's sovereign rating analyst Atsi Sheth told Reuters in a telephone interview.
"The intent appears to be there, but the measures have not been really thought through yet," Sheth added.
($1=60.1800 Indian Rupees)
(Editing by Alan Raybould and Clarence Fernandez)