Santander tests market with euro bond after ECB

MADRID (Reuters) - Santander (SAN.MC), Spain's largest bank, attracted solid demand for a 3.5-year euro bond issue on Friday, tapping positive investor sentiment after the European Central Bank's plan for an unlimited government bond-buying program to help weak euro zone countries.

Santander sold 2.5 billion euros ($3.2 billion) of a 3.5 year senior unsecured bond at mid-swaps plus 390 basis points, said IFR, a Thomson Reuters news and markets analysis service.

The bank had done a 2 billion euro two-year deal last month at the same mid-swaps plus 390 basis point level, highlighting more receptive conditions for banks from the euro zone periphery.

Spanish telecoms company Telefonica (TEF.MC) also took advantage of easier credit conditions, adding 250 million euros on Friday to a 750 million euro debt issue announced on Wednesday.

Lead banks on the Santander's latest issue were Bank of America Merrill Lynch (BAC.N), JP Morgan (JPM.N), Nomura (9716.T) and Santander.

ECB president Mario Draghi's plan to buy government bonds aims to lower struggling euro zone countries' borrowing costs. The premium that investors pay to hold Spanish government debt, compared with German debt, fell to 420 basis points on Friday, around 57 bps lower.

The plan can only be implemented after a government has applied for aid, and accepted the conditions that implies.

(Writing by Paul Day; Editing by Dan Lalor and Jane Merriman)