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* Treasury sells 3.5 bln of 12-mth bills, 1.2 bln of 18-mth
* Yields rise on both bills vs last auction in March
* Spain/Germany spreads 226 bps vs 214 bps before auction
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MADRID, April 18 (Reuters) - Spain paid substantially more to issue 12- and 18-month Treasury bills on Monday compared with last month as uncertainty hovered over a Portuguese bailout and speculation intensified about Greek debt restructuring.
The sale was at the low end of the Treasury's target range of 4.5 billion to 5.5 billion euros ($6.51 billion-$7.95 billion) and comes ahead of a closely watched long-term debt auction on Wednesday of bonds maturing in 2021 and 2024.
Madrid paid between 64 and 93 basis points more than last month, selling 3.5 billion euros of 12-month bills at an average yield of 2.77 percent compared to 2.128 percent at the last auction in March and at a bid-to-cover of 1.6, down from 2.4.
It sold 1.1 billion euros of the 18-month bills with an average yield of 3.364 percent, up from 2.436 percent at the last auction, and a bid-to-cover ratio of 2 after being 3.5 times subscribed in March.
Investors are turning their attention to Spain as the next weakest link in the euro zone chain after Portugal said it would seek aid from the European Union and the International Monetary Fund, the third to fall after Ireland and Greece.
"Everyone was very quick to say that there were no contagion risks bubbling out of Lisbon, but people were very rash in those original assumptions," economist at 4Cast Jo Tomkins said.
"Liquidity is definitely dropping back due to the Easter effect on participation in the T-bill auction. The vultures are circling over Madrid, but I think the lions share of the market thinks Spain will be okay."
The difference between 10-year Spanish bonos and the German Bund stood at around 226 basis points on Monday after the auction, up from 214 bps before the sale. ES10YT=TWEBDE10YT=TWEB
That still reflects vastly lower risk priced in than for Greece and Portugal. The Greek/German 10-year government bond yield spread was last 11 basis points up on the day at 1,079 bps while the equivalent Portuguese/German spread neared 600 bps.
Many economists say Spain has distinguished itself from Portugal, Greece and Ireland after a slew of austerity measures and structural reforms but contagion fears remain and the T-bill auction results suggests a sharp rise in bond yields at Wednesday's auctions.
The yield on the benchmark Spanish 10-year bond with a 5.5 percent coupon, to be auctioned on Wednesday, rose to 5.6 percent on Monday in the secondary market compared to an average yield of 5.162 percent at the last time it was auctioned in March. (Reporting by Paul Day, editing by Mike Peacock)