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UPDATE 1-Allied Irish raises further 500 mln euros via bond

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DUBLIN, Jan 22 (Reuters) - Allied Irish Banks said it raised 500 million euros ($665 million) via a three-and-a-half-year bond on Tuesday, the state-owned lender's second issue in a matter of weeks as it gradually returns to regular market funding.

AIB raised 500 million euros through a three-year sale in November, the first time the bank issued a bond backed by Irish mortgages and without the assistance of a state guarantee since 2007.

Ireland's main banks have followed AIB back into capital markets in recent months, over two years after they lost access, forcing the state into a bailout and lenders to turn to the European Central Bank (ECB) for funding.

While AIB's November issue was sold at mid-swaps plus 270 basis points, Tuesday's slightly longer-dated paper was priced at mid-swaps plus 185 basis and attracted more than 2 billion euros worth of orders, AIB said.

"This transaction demonstrates the continued progress of AIB's strategy of engaging with the market in a balanced and measured manner," the bank said in a statement.

AIB - which cost the state more than 20 billion euros to prop it up during the financial downturn, the most handed out to any lender still operating - said last year that it hoped to tap covered bond markets two or three times this year.

Domestic-owned banks in Ireland saw their reliance on ECB funding fall by 6.5 billion euros to 48.7 billion in December, almost half the level it stood at two years ago, Ireland's finance department said last week.

http://www.globalpost.com/dispatch/news/thomson-reuters/130122/update-1-allied-irish-raises-further-500-mln-euros-bond