UPDATE 3-Greece hires banks for new three-year bond
* Athens says 3-year bond to be issued soon
* Source has said it will raise up to 3 bln euros
* Pricing expected on Thurs - market source
* New issue is second in three months (Recasts with confirmation, govt official quotes)
By Lefteris Papadimas and Alex Chambers
ATHENS/LONDON, July 9 (Reuters) - Greece said on Wednesday it has hired banks for a new three-year euro bond, the aid-reliant nation's second debt sale since returning to financial markets in April.
The issue is expected to raise up to 3 billion euros, a source with knowledge of the matter has said previously.
Athens has been looking to exploit favourable debt market conditions to cement its return to markets and signal its emergence from a protracted debt crisis that nearly sent it crashing out of the euro zone two years ago.
Greece's finance ministry said on Wednesday that the three-year benchmark deal will be issued and priced in the near future subject to market conditions, without providing further details.
A market source said pricing was expected on Thursday.
The announcement confirms a Reuters report in June that Athens was considering a sale before August of a bond with a maturity of three or seven years to raise 2 billion to 3 billion euros.
The sale would follow Greece's 3 billion euro sale of five-year bonds in April.
Greek officials have stressed the aim of the issue is to fill a space in the medium-term part of Greece's yield curve rather than an effort to fund itself unaided. Athens remains hooked on 240 billion euros in bailout funds from the EU and IMF, despite enjoying a sharp turnaround in investor sentiment as it begins to steady its finances.
Greece has set initial price thoughts on the bond at a yield of 3.5-3.625 percent, according to one of the lead managers.
"We are aiming for a yield in the region of 3.5 percent, despite the recent turmoil in the euro zone's periphery," a senior government official said, on condition of anonymity, referring to the upward move in Portugal's bond yields on concerns over the health of Portuguese financial group Espirito Santo.
"The main aim of the issue is to fix the yield curve and not to cover our financing needs which we can do by other means."
Bankers said appetite is expected to be strong for debt issued by twice-bailed-out Greece, whose April bond sale after a four-year exile was also successful.
"We expect the issue of the three-year bond today or tomorrow. I think it will be a success. There is great interest in Greek assets abroad," a banker said.
Greece is targeting a return to economic growth this year after a six-year depression that has shrunk its economy by a quarter - its deepest economic slump in six decades.
Despite the success of its April bond sale, Greece is not expected to make a quick shift towards covering all its funding needs in the markets and has said its return to bond markets will be a "trial and error" process.
The IMF estimates Greece faces a funding shortfall of 12.6 billion euros for the financial year starting in May 2015, though Athens believes any gap can be covered through measures like new bond issues and leftover bank bailout funds.
Five lead managers - Bank of America Merrill Lynch, Citigroup, Deutsche Bank, Goldman Sachs and JP Morgan - are running the debt sale, sources with knowledge of the matter said. (Additional reporting by Sarka Halas; Writing by Deepa Babington; Editing by Catherine Evans and Susan Fenton)