* Spain issues bonds due 2015, 2018 and 2041
* Yields fall on all three bonds
* Portugal, Ireland move closer to mainstream market
By Tracy Rucinski
MADRID, Jan 17 (Reuters) - Improved investor sentiment towards struggling European economies helped Spain cut debt costs at a bond auction on Thursday and allowed it to reach nearly 9 percent of the year's longer term borrowing needs.
Portugal and Ireland, both under bailout programmes from international lenders, also showed more signs of moving back into the mainstream market and shedding their previous debt-pariah status.
The Spanish Treasury sold just over 4.5 billion euros ($5.98 billion) of bonds maturing in 2015, 2018 and 2041, hitting the top end of what it hoped to sell.
It sold 2.4 billion euros in a 2015 bond and the yield, or borrowing cost, fell to 2.713 percent compared with 3.358 percent at the previous auction of that maturity. This was below 3 percent for the first time since May 2012, when Spain's risk premium started to spike and sent yields soaring.
With the sale, Spain has completed close to 9 percent of its 2013 medium- and long-term gross funding needs in just two bond auctions.
"It's encouraging that they achieved 4.5 billion euro which shows they are managing their issuance calendar so far this year without too much difficulty," said Nick Stamenkovic, a strategist at Ria Capital Markets in Edinburgh.
"Most notably the '41 longer-dated bonds were comfortably absorbed. That suggests to me that overseas investors are returning back to the (euro zone) peripheral bond markets including from the U.S. because of the ECB backstop."
Spain's financing costs have fallen by more than 2 percentage points on its 10-year benchmark since the height of the euro zone debt crisis in July last year and after the European Central Bank pledged to do everything necessary to protect the euro.
The 10-year bond was yielding around 5.07 percent on Thursday, well below the 7 percent-plus seen in mid-2102.
The ECB pledge -- which included a programme to buy bonds if a country needed it after applying for a bailout -- meant investors were given something of a safety net.
Spanish Prime Minister Mariano Rajoy has been reluctant to take the political risk attached to applying for the aid which could trigger an ECB bond-buying plan, but investors are unwilling to bet against the shadow of potential central bank participation.
Sentiment towards other struggling euro zone economies -- referred to as the periphery -- has also received a boost from the ECB bond buying pledge.
Ireland sold 500 million euros of three-month treasury bills on Thursday at a yield of 0.2 percent, the lowest since it started issuing short-term paper again in July following an almost two-year hiatus after seeking an international bailout.
Fellow bailout recipient Portugal is also preparing to issue a 5-year syndicated bond as it strives to return to regular financing in the debt market, Portuguese daily Diario Economico reported on Thursday citing market sources.
On Wednesday Italy also took advantage of high demand and consequentially lower borrowing costs, raising 6 billion euros with a 15-year bond sale and meeting nearly 10 percent of its 2013 borrowing target.
In France, a country treated by investors as having a core euro zone economy despite its large debt, there was heavy bidding for short-, medium-term and inflation-linked debt at an auction on Thursday.
Spain unloaded more-than-targetted amounts at both its first bond sale Jan. 10 and at a T-bill sale Jan. 15 this year. Large companies, virtually priced out of the debt market last year, have also rushed to place paper.
The government aims to raise 121.3 billion euros in medium- and long-term debt in 2013, up 7.6 percent from 2012.
At Thursday's auction the Treasury also sold a 2018 bond, at an average yield of 3.770 percent, down from 3.988 percent the last time that maturity was sold and the lowest of similar maturities in almost a year. The bid-to-cover ratio, a measure of demand, fell to 2.3 from 2.6 previously.
It also sold 512 million euros of a 2041 bond with the yield falling to 5.696 percent from 6.002 percent and the bid-to-cover ratio coming in at 2.0 percent, the same as the last time it was sold.
The near-30 year issue, and a bond due July 30, 2040 on Dec. 13. which went to market in December, are the longest dated paper to be auctioned in a year and a half.
While the average maturity of Spanish debt fell to 6.04 years in November from 6.61 a year earlier, the Treasury has said it aims to keep the maturity level at current levels through this year's issuance programme.