UPDATE 3-First Data bond issue demand weighed

(Adds details, updates timing)

NEW YORK, April 3 (Reuters) - Underwriters are gauging investor interest in an issue of high-yield bonds for First Data Corp, with pricing expected at a discount of about 83 cents on the dollar, an analyst and investor looking at the deal said on Thursday.

Pricing for the offering is expected next week, a source close to the deal said.

Underwriters in October sold $2.2 billion of high-yield bonds to help fund credit card processor First Data's leveraged buyout, but still need to sell another $6.8 billion.

The new offering is expected to offer market-level yields, or about 13.5 percent, said Andrew Feltus, portfolio manager for Pioneer Investments' global high-yield fund in Boston.

A spokesman for underwriter Citigroup could not immediately be reached for comment.

Underwriters may be hoping to take advantage of a window of investor demand after some issuers successfully tapped the high-yield market last week, said Robert L. Lee, an analyst for high-yield research at KDP Investment Advisors.

"The market seems to be showing the first hint of opening up again, but it's still very tight, especially for lower-rated issuers," Lee said.

Sales of high-yield bonds had all but dried up this year as recession worries and fallout from a global financial crisis curbed investor demand for riskier debt. Just $5.9 billion was issued in the first quarter, an 85 percent drop over the year-earlier period, according to Thomson Financial.

The offering is expected to include about $1.5 billion of an add-on to the $2.2 billion of First Data's 9.875 percent notes sold in October, Pioneer's Feltus said. Underwriters are said to have a fair amount of interest for that portion, he said.

A subordinated portion from the Alltel holding company may also be sold, he said.

The expected discount would be sharply higher than the 94.8 cents on the dollar on First Data's October issue.

"I don't these these are necessarily great levels to be selling, but for the banks it reduces their exposure at risk," Feltus said.

Banks were left holding a glut of unsold debt after the U.S. subprime mortgage crisis sparked a global credit crisis last summer. Banks that had committed to provide financing for LBOs were stuck with the debt when they were unable to sell it to investors.

Around the end of March, the pipeline of LBO debt included about $127 billion of unsold loans and $74 billion of bonds, according to Bank of America estimates.

The unsold portions of Alltel's LBO financing include about $1.5 billion of senior cash-pay unsecured notes, $2.75 billion of pay-in-kind unsecured notes and $2.5 billion of senior subordinated unsecured notes. (Reporting by Dena Aubin; editing by Gary Crosse)