UPDATE 2-Greece sells bills to roll over 5 bln eur debt this week
* Greece sells 4.062 bln eur of 1-, 3-month T-bills
* Non-competitive bids to raise enough for full debt rollover
* Three-month yield drops to 4.2 pct; bid-cover ratio 1.66
By George Georgiopoulos
ATHENS, Nov 13 (Reuters) - Greece on Tuesday raised most of the funds it needs to refinance 5 billion euros of T-bills this week and avoid a default, and it expects to bring in the rest by Thursday.
Shunned by international investors and financed mainly through its bailout lenders, Athens's only source of market funding comes from its monthly T-bill sales.
Greece's debt agency, PDMA, sold 4.062 billion euros ($5.14 billion) of one- and three-month treasury bills, including 937 million euros in non-competitive bids.
Athens has won approval from the European Central bank to increase its stock of T-bills so it can continue rolling over short-term debt, as its international lenders have delayed the next aid tranche due under its bailout programme. The government plans to pay down the one-month T-bills once it gets that money.
Global markets had shown signs of nervousness ahead of the T-bill sale, but primary dealers in Greece, who take up the majority of the paper, said Athens would have no problem rolling over the debt.
"There was no anxiety at any treasury here that the auction would be filled. By Thursday the full 5 billion euros will be raised through supplementary bids," said a treasurer at an Athens-based bank who declined to be named.
PDMA traditionally accepts non-competitive bids worth up to 30 percent more than the amount it auctions on the same day and another 30 percent two days later.
Primary dealers can submit such bids until Nov. 15. They traditionally take up all the debt allowed. This has been the debt agency's standard practice for years, to fine-tune the proceeds from its debt auctions with the government's cash-flow needs.
CRISIS RAGES ON
Greek banks traditionally buy the bulk of T-bill issues, meaning funding costs do not fully reflect the strains from the country's debt crisis. Banks can deposit the bills as collateral with Greece's central bank to receive funding.
PDMA sold one-month T-bills at a yield of 3.95 percent. Three-month T-bills were priced to yield 4.2 percent, compared to 4.24 percent in a previous sale in October.
The bid-cover ratio in the auction of 3-month paper was 1.66 versus 1.9 in the Oct. 16 sale.
"It's very short-term paper and it's a rollover so it went OK. The important part was less the bid/cover but that there wasn't a big rise in three-month yields relative to October," said Marc Oswald, a rate strategist at Monument Securities in London.
"But there are still a lot of important issues to be resolved for Greece. The crisis is far from over," he said.
Athens stepped up its T-bill issuance in August this year to repay a 3.2 billion euro bond that was held by the European Central Bank, raising the funds in a 3-month T-bill sale.
"Everything is in place to cover the next redemptions. I think European politicians and Greek politicians knew that already. The main thing now is to find an agreement for the next tranche to pay back the bills next month, and this discussion hasn't finished yet," said ING rate strategist Alessandro Giansanti.
The aid tranche has been delayed after the country's economic adjustment programme got off track, but Athens has since passed a tight 2103 budget and a 13.5 billion euro package of wage and pension cuts and tax hikes.
The government has said its cash reserves are nearly depleted.
"We expect that the next aid installment may be released before the one-month T-bills expire," a finance ministry official told Reuters, explaining why Athens also opted for a one-month issue in Tuesday's auction.
France's finance minister said on Tuesday that lenders aimed to disburse more fund to Greece by the end of November.