UPDATE 1-Israel raises $3 billion in record U.S. dollar bond issue

(Recasts, updates with results and quote)

JERUSALEM, Jan 8 (Reuters) - Israel raised a record $3 billion in foreign debt on Wednesday in an offering that received huge demand from investors despite a year-long political stalemate and rising geopolitical tensions in the region.

It sold $2 billion of 30-year U.S.-denominated bonds at 3.375%, or 115 basis points over comparable U.S. Treasuries, and another $1 billion of 10-year bonds at 2.5%, or 68 basis points over Treasuries -- the lowest-ever spreads for an Israeli international debt offering.

Demand for the issues, the Finance Ministry said, reached an all-time high of $20 billion and attracted more than 400 different investors from 40 countries including the United States, Britain and Germany. Among the buyers were central banks, pension funds, insurance companies and other entities that already hold Israeli securities.

The ministry said there was high demand from Asian institutional investors, including Japan and Hong Kong.

Accountant General Rony Hizkiyahu said the results reflected confidence among the world’s largest investors in Israel’s economy and its bonds.

“The level of issuance and the low cost achieved will constitute an important element in financing the government’s activities in the coming year,” he said, adding Israel was well established in global financial markets.

The killing of an Iranian general last week and Iranian missile strikes on Wednesday on military bases in Iraq housing U.S. troops have heightened concern about security in the Middle East.

Also, Israel will hold a third election in less than a year in March after the failure to form a governing coalition following inconclusive elections in April and September.

A 2020 state budget is unlikely to be approved until at least mid-2020, and the caretaker government is limited in its ability to enact economic policies.

Israel posted a budget deficit of 3.7% of gross domestic product in 2019, above a target of 2.9%, although its debt to GDP ratio dipped to 59.5%. Economic growth was 3.3% in 2019.

The dollar issue was the 13th for Israel, which typically taps global markets every year, alternating between dollar- and euro-denominated offerings. In January 2019, it sold 2.5 billion euros ($2.8 billion) in a dual-tranche issue split between 10 and 30 years - at the time a record for Israel on foreign markets.

Israel sold $2 billion of 10- and 30-year bonds in 2018, and prefers to issue early in the year in the belief that pricing is better.

Bank of America Securities (BofA), Citigroup and Goldman Sachs were joint bookrunners for the offering.

Standard & Poor’s rates Israel’s sovereign debt at “AA-“, while Moody’s Investors Service rates Israel at “A1” and Fitch Ratings at “A+”.

$1 = 0.8985 euros Reporting by Steven Scheer; Editing by Tova Cohen and Timothy Heritage