Strong demand for US $40 bln, 3-yr debt sale

NEW YORK, March 9 (Reuters) - The U.S. government sold $40 billion worth of three-year debt on Tuesday in an auction that met robust demand and bode well for offerings later this week.

The three-year auction, part of this week's $74 billion in bond offerings, attracted bids worth 3.13 times the amount on offer, which was above the average of 2.98 at the last six sales.

Yields at the auction came in slightly below expectations, based on trade in the when-issued market at the deadline for bids. This indicates investors were willing to pay a small premium to get their hands on the bonds.

"Overall a very solid auction," said Aaron Kohli, interest rate strategist at RBS Securities in Stamford, Connecticut.

Foreign central bank and large institutional investor demand was near recent averages, based on the indirect bidder category which accounted for 51.6 percent of the sale.

This was marginally below the average of 53.58 percent in the auctions since June, which has become a benchmark for comparisons due to changes in calculations that have boosted this category.

The recently growing direct bid accounted for 10.3 percent of the sale, beating its 9.27 percent average since June.

Financial markets are watching bond auctions closely, given a burgeoning U.S. budget deficit brought on by a costly financial sector bailout and efforts to stimulate the economy.

While investors in May 2009 briefly appeared to question the longevity of the United States' prized AAA credit rating, those worries seem to have subsided. Some analysts say the jump in debt could yet come back to haunt the government.

(Reporting by Burton Frierson; Editing by Andrew Hay)