Spain, France brace for euro long-term debt test

* Spain to sell up to 4.5 bln euros in bonds

* First 10-year issue since mid-Dec to be main focus

* France aims for 9.5 bln eur, sale includes 28-yr paper

* Good Spain sale may encourage foreign interest: analyst

By Nigel Davies and John Stonestreet

MADRID, Jan 19 (Reuters) - The euro zone should pass the biggest test of demand this year for its longer term debt on Thursday when Spain and France offer a combined 14 billion euros of bonds, with the backstop of ECB support and relatively high yields likely to encourage buyers.

Other sovereign debtors have leapfrogged Spain to become more prominent market targets but Madrid's first 10-year bond offering since mid-December will grab the most attention among the nine debt issues that will go on sale there and in Paris.

France is also expected to succeed in selling up to 9.5 billion euros ($12.2 billion) of bonds, shrugging off the loss on Friday of its coveted AAA rating in S&P's euro zone review, after an auction of short-term debt on Monday drew strong demand at near-rock bottom yields.

Spain has easily sold shorter-dated debt in recent days and weeks, aided by the European Central Bank flooding the market with cheap three-year money and making regular purchases of Spanish and Italian debt.

But while banks may be willing to reinvest the three-year loans over a similar or shorter timescale, finding buyers for 10-year paper could prove much harder. One observer earlier this week called this a litmus test for the euro zone - particularly since it marks the first sale of that benchmark maturity by a peripheral euro zone state since the swathe of rating downgrades by Standard & Poor's.

Even so, with euro zone investors more concerned about mounting risks of a disorderly default by Greece, many analysts expect the Spanish sale will go well, predominantly supported by domestic banks.

"The ECB is working on two fronts through its liquidity auctions and bond purchases and there are signs of a lot of liquidity in the market. For now I can't see sovereigns facing problems in raising funds," said Orlando Green, strategist at Credit Agricole.

Spain's 10-year borrowing cost could fall slightly from the 5.545 percent it paid the last time it sold a comparable maturity, moving further away from the peaks of last year, when its yields almost hit the 7 percent level that drove Greece and others to seek international aid.

A WINDOW FOR FOREIGN BORROWERS?

With yields on bonds from the euro zone's remaining triple-A issuers stuck at or close to rock-bottom levels, one analyst even predicted the Spanish sale could encourage international banks - conspicuous by their absence in recent months - to start buying peripheral debt again.

"I don't think there's anything to prevent banks buying longer term as well as short-term (Spanish) debt as the yields are enough to motivate investors. If they go well then we could see international banks start to come back in," said Ioannis Sokos, strategist at BNP Paribas.

In all, Spain will try to raise up to 4.5 billion euros from bonds due in 2016, 2019, and 2022. Good results would also provide evidence that markets are responding well to the raft of measures to tackle Spain's debt and deficit introduced since the new government took office in December.

Analysts said they expected yields on the bonds to roughly match those in the secondary market. At 1500 GMT on Wednesday, Spanish 10-year paper yielded 5.19 percent.

The French auction will include some bonds with maturities of up to 28 years that offer protection against inflation.

The French debt management agency will seek to sell between 6.5 and 8.0 billion euros of debt maturing in 2014, 2015 and 2016, plus 1.0 to 1.5 billion of index-linked bonds maturing in 2016, 2022 and 2040.

"The three-year (ECB money) has eased the pressure on Spain and Italy, and everyone's following suit," said Raoul Salomon, managing director at Barclays Capital in Paris.

The ECB more than tripled its bond purchases last week to the highest level since late November, spending 3.77 billion euros as a calm start to the New Year gave way to an intensification of the euro zone debt crisis.