UPDATE 2-Banks pile into bigger, lower yield Taipower bond sale

(Adds TSMC subscribed to the bonds in fourth graph)

TAIPEI, July 22 (Reuters) - Taiwan Power Co, the island's
largest issuer of corporate bonds, sold more 5-year bonds than
planned on Tuesday at lower yield than a previous auction due to
strong demand from banks that are flush with liquidity.

The yield came within the 2.80 percent and 2.85 percent
level that bond dealers had expected. But the yield was lower
than a similar auction in June, when the state-run utility
company sold 5-year bonds at a 2.90 percent yield.

Taipower sold T$9.5 billion ($313 million) worth of secured
bonds, higher than its original plan of T$8 billion.

Taiwan Semiconductor Manufacturing Co. (2330.TW) (TSM.N),
the world's top contract chip maker, subscribed to T$610 million
of the bonds, the chip maker said in a statement without
elaborating.

Tuesday's auction included T$2.55 billion of 3-year bonds
sold at a 2.65 percent yield, T$3.9 billion of 5-year bonds at
2.83 percent and T$3.05 billion of 7-year bonds at 2.99 percent.

"There was a lot of demand from banks for the 3- and 5-year
bonds," the source said, adding that liquidity in the banking
sector was still abundant even after the central bank's
tightening campaign for almost 4 years.

Taiwan's central bank raised its main policy rate for 16
straight quarters since late 2004, bringing the benchmark
discount rate to a 7-year high of 3.625 percent.

Taipower has been bleeding losses over the past year or so
as the government capped utility prices to appease consumers'
frustration over inflationary pressures before the presidential
elections in March.

Earlier in the month, Economics Minister Yiin Chii-ming said
Taipower's losses will likely hit T$140-T$150 billion ($4.6-$4.9
billion) next year, an increase of at least 17 percent from this
year's projected T$120 billion loss.

Losses are likely to widen next year even as Taiwan is
raising electricity prices from July through the end of the year
by a combined 25.2 percent, mainly because Taipower is offering
incentives to users who conserve power.
(Reporting by Rachel Lee; Writing by Lee Chyen Yee; Editing by
Ken Wills)