UPDATE 2-Santander subordinated bond redemption delayed

(Adds analyst comment)

LONDON, Sept 1 (Reuters) - Santander (SAN.MC) will not exercise an option to redeem a 500 million euro ($718 million) Lower Tier 2 bond as scheduled due to administrative reasons, the Spanish bank said on Tuesday.

"Santander's intention is to call it as soon as possible following the proper authorisations, expected in the short term and in line with the calendar of the issuance," an official at the bank said.

Subordinated bonds typically have "call" dates when the borrower has an option to redeem them before the final maturity date.

Santander's Lower Tier 2 bond was issued on Sept. 30 2004 and has a maturity date of Sept. 30 2014.

The first call date on the bond was Sept. 30, according to one trade source.

Traders said they believed the bond would now be redeemed in December.

"This has created a little bit of noise," said one, but he said there was not too much impact on Santander subordinated bond spreads in a market where spreads were generally wider.

"We expect the next call date in December to be honoured," Societe Generale credit strategist Suki Mann said in a note to investors.

But Mann did also remind investors that the Spanish bank had said in July early redemption of such bonds would be decided on an economic basis in future.

"Investors must still be prepared for this possibility," he said.

Santander's subordinated credit default swaps were about 11 basis points wider at about 125 basis points, in line with a weaker market, Mann's note said.

(Reporting by Paul Day in Madrid and Jane Merriman in London; Editing by David Holmes) ($1=.6964 Euro)