UPDATE 4-Mexico to issue 100-year bond to attract cheaper funds

* Pricing of 100-year Mexico bond expected Tuesday

* Strong demand could see near $1 billion issue

* Sources see yield at 6.0 to 6.125 pct at sale

(Recasts, adds byline, detail on demand)

By Lizbeth Salazar

MEXICO CITY, Oct 5 (Reuters) - Mexico launched its first 100-year bond on Tuesday, sources familiar with the deal said, in a bold bid to secure cheaper funds from global investors.

The first tranche of a new debt sale of up to $80 billion attracted enough demand for issuance of $1 billion, double the $500 million expected earlier in the day, a source close to the deal said.

The bond, which is expected to yield between 6.0 and 6.125 percent, will likely become a valuable benchmark for Mexico when it sells other bonds of shorter maturity.

Mexico’s benchmark 10-year note yield fell to a record low this year as investors turned to developing countries for returns greater than offered by U.S. Treasury debt.

The government of Latin America’s No. 2 economy is not in dire need of funds but the issue will set a valuable long-term marker for future debt issuance, said Enrique Alvarez, an analyst with IDEAglobal in New York.

Mexico’s credit rating was downgraded last year but it is still investment grade and has a stable outlook.

The debt sale, via Deutsche Bank and Goldman Sachs, represents a sensible government step to shore up overall public finances while debt markets are inviting, said Gabriel Casillas, chief economist at JPMorgan in Mexico.

“If the government can bring a bond with this maturity, it means you have healthy finances, (but) I don’t think it represents any structural change in the way bonds are issued,” he said.

The yield on Mexico's 10-year bond MX10YT=RR was down 2 basis points at 6.14 percent on Tuesday afternoon. Yields on 30-year bonds were down 6 basis points at 7.11 percent. The benchmark's yield hit the historically low rate of 5.96 percent in August.

Strong investor demand has meant a low borrowing rate for Mexico, but other countries in the region have even waved investors away to try to keep their currencies from rising further.

Earlier this week, Brazil doubled to 4.0 percent a tax on foreign investors buying local, fixed-income assets to curb a rise in the real which was hurting exports.

If Mexico’s pioneering move is a success, analysts expect other nations will mull their own century bonds.

“There is nothing stopping Brazil from doing one,” said Nick Chamie of RBC Capital Markets. “It’s literally having an investment bank coming to them saying ‘We have clients lined up to do it, are you interested?’ And they’ll say ‘yes’.”

The big debt issuance follows with other fund raising by Latin American countries. Last month Brazil's state controlled oil company Petrobras PETR4.SAPBR.N raised a record $70 billion in an IPO.

The last time the region saw a 100-year bond was in a corporate issue in 1997, when Chile’s Embotelladora Andina sold a $100-million century bond, according to IFR Markets.

Mexico’s 100-year issue could reach up to $80 billion, according to a securities filing with the U.S. Securities and Exchange Commission. (Reporting by Paul Kilby, Lizbeth Salazar, Samantha Pearson, Tomas Sarmiento, Luis Rojas Mena, Caroline Stauffer, Michael O’Boyle and Jean Luis Arce, Writing by Patrick Rucker; editing by Missy Ryan)