UPDATE 2-Portugal says bond issue successful, eyes bailout exit
* Five-year bond reaches 3.25 billion euros target
* Minister says bond demand exceeded 11 billion euros
* Chinese group wins insurance unit in privatisation (Recasts with premier's quotes, adds bond placement details, opposition)
By Axel Bugge and Andrei Khalip
LISBON, Jan 9 (Reuters) - Portugal reached nearly a third of its annual bond issue target with its first issue of 2014, the year in which it plans to move on from its international bailout helped by strong demand from abroad for its bonds.
The government also announced another privatisation, bringing the money it has raised in this way since the bailout to 8.1 billion euros ($11 billion) and beating its goal of around 5 billion euros.
Officials have said Lisbon will try to resume regular bond auctions this year, in addition to syndicated issues like Thursday's.
Prime Minister Pedro Passos Coelho told reporters on Thursday: "Portugal now has to continue taking advantage of such opportunities to be able to prove that it can exit its assistance programme with a full return to the markets.
"It's a process, but we had a good start and this is important," he added.
Finance Minister Maria Luis Albuquerque said earlier the five-year bond issue had reached the government's goal of 3.25 billion euros ($4.4 billion) on what she said was "very significant demand" that exceeded 11 billion euros. The government's 2014 bond issuance target is 10.5 billion euros.
The IGCP debt agency said the issue "enjoyed particularly strong take-up from international real-money investors", including 16 percent bought by insurance and pension funds. Foreign investors accounted for 88 percent of the take-up.
The final yield on the June 2019 bond was 4.657 percent, in line with the secondary market and well below the 6.4 percent in the last pre-bailout bond issue in 2011. It was also lower than last January's 4.89 percent on a slightly shorter maturity.
"The successful bond issuance today is an important step in restoring sustainable market access for Portugal," said European Commission spokesman Simon O'Connor, adding that it reflected how rigorously the country had stuck to its bailout programme.
Portugal wants to demonstrate to investors that it can issue bonds to ensure a smooth exit from its 78-billion-euro bailout as planned in mid-2014. Sharply falling yields and growing optimism in markets that the worst is over in the euro zone crisis is helping Lisbon.
Nicholas Spiro, managing director at Spiro Sovereign Strategy, said Portugal was reaping the benefits of sharply improving market sentiment.
"Portugal is now building up a cash cushion like Ireland did last year," he said. "There is a window of opportunity for Portugal to issue bonds that doesn't seem to be closing quickly."
But Spiro, like many other economists, doubts Portugal can manage for now without some sort of precautionary lending programme, unlike Ireland which made a 'clean exit' from its assistance plan.
In a reminder that Portugal's plans for a smooth bailout exit may still run into problems, the main opposition Socialists said on Thursday they were formally challenging a range of spending cuts from this year's budget - particularly public sector wage cuts - at the constitutional court.
Leftist opposition parties had long vowed to ask the court to reject these budget cuts worth a total of about 1 billion euros in court, but this is the first formal request.
The court has already thrown out several important austerity measures over the past two years, forcing the government to come up with alternative steps in order to meet Lisbon's deficit targets under the bailout.
But the government also announced on Thursday the winner of a privatisation tender for Caixa Seguros, the insurance unit of the state-owned bank Caixa Geral de Depositos. The sale to Chinese group Fosun International will earn the government about 1 billion euros.
Portugal's stock index PSI20 rose to its highest levels since mid-2011 earlier on Thursday. ($1 = 0.7361 euros) (Additional reporting by Daniel Alvarenga and Sergio Goncalves; editing by Matthias Williams/Ruth Pitchford)
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