WRAPUP 1-Demand strong at Germany, Portugal debt auctions

* Germany sells 5 bln eur of 10-yr bond

* Yield hits record low 2.37 pct, demand robust

* Portugal sells 1.5 bln euros of bills, 3-mth yield halves

* Demand solid at both auctions

(Wraps different stories)

By Ian Chua and Andrei Khalip

LONDON/LISBON, Aug 18 (Reuters) - Germany's cost of borrowing sank to a record low at a sale of 5 billion euros in 10-year bonds on Wednesday, while Portugal eased concerns over its finances by selling more short-term debt than previously planned.

Mirroring results of Irish and Spanish sales on Tuesday, the auctions showed there is solid demand for euro zone bonds as the global economic outlook deteriorates, with investors willing to buy debt of riskier issuers at much lower prices than earlier this year.

The yield on three-month Portuguese bills almost halved from the previous auction in June, when fringe euro zone borrowers were still recovering from a sell-off sparked by worries they and others could follow Greece into crisis.

"There still seems to be decent and sufficient demand out there from investors who are willing to buy at these prices and overall the funding capabilities of the peripheral seems to be well intact," said Michael Leister, strategist at WestLB in Dusseldorf.

The new 10-year German bond showed a record low average yield of 2.37 percent DE0001135416=R compared with 2.56 percent for the previous benchmark in a tender in July.

Portugal sold 175 million euros more than planned of its 3-month Treasury bills, at average yields of 0.994 percent, down from 1.861 in June. The 12-month yield inched up to 2.727 percent compared to another tender two weeks previously.

"It's really amazing that the yield on the three-month paper almost halved, it definitely outweighs the negative side with the 12-month rate rising, which is not something to worry about anyway after some market volatility of the past two weeks," said David Schnautz, bond strategist at Commerzbank in London.

10-year German yields DE1OYT=TWEB touched a record low of 2.31 percent after the auction while the Portuguese/German spread PT10YT=TWEBDE10YT=TWEB fell to 282 basis points.

See [ID:nTAR001741] and [ID:nLDE67H0VO] for auction details.

DOWN ON GROWTH

Government debt markets have been buoyed by downbeat assessments of the economy from U.S. Federal Reserve and Bank of England this month as well as data showing Japan's economic growth slowed to a crawl in the second quarter.

The worse the prospects for growth are, the longer it will take before banks start tightening monetary policy, and the higher debt prices should remain.

"There's an ongoing question mark out there with regards to the U.S. economy and whether it's going into a double-dip or not. If the U.S. economy goes down, we go down as well," said Padhraic Garvey, strategist at ING.

The same worries over the economy, though, have also returned investor attention to the troubles of economies like Portugal, Spain and Ireland, where policymakers are struggling to get budgets under control amid anaemic growth.

Analysts said the real test for the peripheral euro zone debt markets will come in September when a more normal debt issuance schedule resumes following the European summer lull. [ID:nLDE67H0LN] (Reporting by Ian Chua in LONDON, Andrei Khalip and Axel Bugge in LISBON; editing by Patrick Graham)