Spain sells 5.5 bln euros in bills

Spain saw strong demand at 12- and 18-month treasury bill auctions on Tuesday with yields falling from last month, easing some tensions over debt servicing in countries on the periphery of the euro zone.

Spain sold 5.51 billion euros of debt, at the top end of the Treasury's target of 4.5-5.5 billion euros following a sustained selloff of weaker euro zone countries' debt for the safer haven of German bunds.

"Spain has managed to get things done despite low liquidity in the markets. It is good for periphery sentiment -- sovereigns in general are not having funding problems which is a good sign for markets" said Orlando Green at Credit Agricole.

The auctions took place just ahead of the sale of longer-dated Irish bonds, which analysts felt might fare relatively well as investors looked to move back into the paper at lower cost after pricing in concerns over the country's banking sector.

The average yield on Spain's 12-month bill was 1.836 percent, down from the 2.221 percent seen last month, while the yield on the 18-month issue was 2.078 percent versus 2.331 percent at the July 21 auctions.

On Tuesday the key spread of Spanish ten-year bonds and German bunds was 166 basis points, roughly the same level as at last month's auctions.

The bid-to-cover ratio on the 12-month bill was 2.47 after 1.95 at the last auction, while it was 3.85 for the 18-month bill after 2.44 at the July auction.