Spain sells $2 billion in dollar bonds

MADRID (Reuters) - Spain sold $2 billion of dollar-denominated debt on Wednesday, its first offering in the U.S. currency since September 2009, taking advantage of benign markets to diversify its debt and reduce dependence on domestic investors.

Spain has one of the highest public deficits in the euro zone, and fears of overspending by its regional governments, a prolonged recession and unrest due to high unemployment drove up its borrowing costs until the European Central Bank stepped in with a pledge to buy bonds of struggling member states.

The Treasury priced the 5-year bond at midswaps +300 basis points, the Economy Ministry said in a statement, with most buyers coming from outside the euro zone.

The country has already sold almost a fifth of its medium- and long-term 2013 debt target via a new 10-year benchmark bond sold through a syndicate, and via three auctions as yields ease from euro-era highs reached in mid-2012.

It aims to raise up to 4 billion euros ($5.4 billion) more at a triple bond auction on Thursday.

The total order book for the bond due to mature in March 2018 came to $3.1 billion and included investment funds, central banks, hedge funds and commercial banks, the Economy Ministry said.

The Treasury recently conducted a road show to the United States to drum up investor interest for its paper, which has been at the centre of the euro zone debt crisis as investors demanded unsustainably high yields on concerns over the economy.

"The feedback we had from the roadshow was very, very positive," said a government source close to the issue.

"We visited over 35 accounts. I believe there's a shortage of yield in the U.S. market for a lot of investors and the combination of the credit and yield of this product is very attractive."

A 10-year benchmark bond sold 7 billion euros at a syndicated sale on January 22 and saw orders top 22 billion euros, the source added.

The euro zone's fourth-largest economy saw its 10-year bond yields soar to above 750 basis points in July, prompting concerns it would have to apply for a European rescue that the bloc could barely afford.

The government cut its budget deficit to below 7 percent of gross domestic product in 2012 from around 9 percent a year earlier, Prime Minister Mariano Rajoy said on Wednesday, but that was still above its European Union-agreed target.

Lead banks managing the issue were Barclays, Citi, Santander and Societe Generale CIB. ($1 = 0.7479 euros)

(Additional reporting by Sonya Dowsett; Editing by Tom Pfeiffer)