UPDATE 1-GlaxoSmithKline set to sell sterling bond

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LONDON, March 28 (Reuters) - A unit of GlaxoSmithKline (GSK.L), Europe's biggest drugmaker, has released spread guidance on the 35-year sterling bond it plans to sell, a banking source said on Wednesday.

The bond from the maker of brands such as Panadol painkillers, Aquafresh toothpaste and Lucozade will be priced to yield 85 to 90 basis points over Gilts, the source said.

The benchmark-sized bond from GlaxoSmithKline Capital will be launched soon, subject to market conditions, an official at one of the banks managing the sale said earlier. HSBC and Lehman Brothers are lead managers.

Neil Murray, investment director at Scottish Widows Investment Partnership said the bond was expected to be launched later on Wednesday.

"They are a stable credit and mid-double A is an easy one to lock away in people's portfolios," he said.

A sterling bond trader said GlaxoSmithKline's 5.25 percent bond due 2033 GB014051686= widened 3 basis points to be bid at 74 basis points after the new issue was announced.

"The new Glaxo 2042 bond is coming at a good rate, so the 2033 bond is weaker on the back of that," he said.

LONG-DATED DEMAND

British investors, particularly pension funds, have been eager for long-dated bonds to match their long-term liabilities, but Scottish Widows' Murray said demand has eased slightly, after British finance minister Gordon Brown delivered his 11th annual budget last Wednesday. [ID:nL15126330]

"(The demand for long-dated bonds) has been slightly tempered -- the Gilt curve has actually been disinverting, steepening up in the last week because of the budget and people expecting Gordon Brown to issue a lot at the long end," Murray said.

He said he thought the size of the bond would be smaller than GlaxoSmithKline's last foray into the sterling market when it sold a 1 billion sterling ($1.96 bln) bond due 2033.

GlaxoSmithKline Capital is guaranteed by GlaxoSmithKline. It is rated Aa2 by Moody's Investors Service and AA by Standard & Poor's.

Apart from the 2033 bond, GlaxoSmithKline Capital has one sterling bond outstanding, according to Reuters data: a 4.875 percent sterling bond due October 2008 GB015522747=.