* Demand for new 10-year bond near 40 bln euros-IFR
* Large coupon and debt repayments support sale
* Easy ECB policy outlook supports German debt sale
By Emelia Sithole-Matarise
LONDON, Jan 22 (Reuters) - Spanish yields fell back near eight-year lows on Wednesday as the sale of a new 10-year bond drew bumper demand, potentially supported by reinvestments of large coupon and debt repayments.
Investors bid for almost 40 billion euros ($54.2 billion) of the April 30, 2024 bond sold via syndication, one of the banks managing the sale told IFR, a Thomson Reuters financial service.
The deal will be priced later in the day and some analysts anticipate the final size will top initial estimates of around 7 billion euros.
Madrid has set off its 2014 funding programme at a cracking pace. With improved demand for higher-yielding euro zone bonds spurred by a brighter growth outlook, more positive ratings reviews and hefty bond repayments, it has been selling bonds every week since the start of the year.
The syndicated sale comes after an auction of 5.9 billion euros of 2017, 2026 and 2028 debt last week.
These sales mean Spain has already met over 10 percent of its aim to sell 133.3 billion euros in medium- and long-term bonds this year, up from 128.4 billion last year.
Wednesday's sale likely benefited from coupon and debt repayments worth 12 billion euros due from Madrid in coming days and increasing market expectations the European Central Bank will loosen policy further to support growth.
"It's a very impressive order book and they have taken down the initial spread guidance quite markedly so the bond is more or less (priced) almost at no new issue premium versus the Spanish curve," Commerzbank strategist Michael Leister said.
"Overall, taking the secondary market performance with the 10-year Spanish debt sector outperforming shows the deal is going really well and is very well received."
Spanish 10-year yields were last 4 basis points down at 3.70 percent, just above an eight-year low of 3.65 percent on Monday. Yields on other lower-rated euro zone bonds were slightly lower.
The yields retreated off the eight-year lows on Tuesday as speculation Madrid was planning to launch a new 10-year bond prompted some portfolio adjustments. But analysts say the limited rise signals resilience in demand for the bonds.
Some in the market, however, say if the current pace of sales is maintained next month when bond supply is expected to surpass repayments, this could torpedo the rally.
"January has been quite a successful month based on cashflows with huge amounts of redemptions and coupon payments coming to the market which made for negative net supply. That won't be the case for February and the risk now is for wider spreads," said ING strategist Alessandro Giansanti.
Increasing bets the ECB will cut interest rates further to counter a rise in short-term money market rates and support the economy from potential deflation also spurred demand at a German two-year bond auction.
Two-year yields were steady at 0.17 percent, having re-tested six-week lows around 0.63 percent on Tuesday on the ECB outlook and expectations that short-term money market rates will retreat from recent peaks.