* Avg yield falls a third from previous auction in May * 762 mln in t-bills sold, indicative offer was 600 mln * Analysts say demand strong, fundraising outlook good (Adds analysts throughout) LISBON, July 7 (Reuters) - Portugal sold 762 million euros ($1.02 billion) in six-month t-bills on Wednesday, higher than initially planned, and with analysts positive on the auction after yields fell more than a third from the previous sale. The indicative offer was 600 million euros in t-bills. The average yield fell to 1.947 percent from 2.955 percent in the previous 6-month t-bill auction in May, although that auction took place just before a European safety net plan was agreed. Demand exceeded supply by 1.8 times, just under the 1.9 times seen in the May auction, but still solid according to debt traders. "The yield is in line with the secondary market, and demand remains within the levels seen in recent similar issuances," said Filipe Silva, a debt manager at Carregosa bank in Porto. "It was a positive auction as the yield came in lower than in the previous auction. It was a sharp fall," he said. The premium investors demand to buy Portuguese government bonds rather than euro zone benchmark German Bunds rose on Wednesday as part of a broader market move driven by renewed risk aversion as stocks resumed their decline. The 10-year Portuguese/German government bond yield spread widened almost 10 basis points on the day to 295 bps on the day. Orlando Green, interest rate strategist at Credit Agricole in London said the auction showed Portugal was managing to raise funds successfully in an improving environment. "This shows that they (Portugal) are able to place debt with no major problems. Funding in general is a lot smoother than it has been in the recent past and this is an indication that funding for Portugal is becoming easier," Green said. "We believe this will remain in the near future ... with the only major event risk being the results of the bank stress tests," he said. But others cautioned against drawing too firm a conclusion. The previous sale of 6-month bills came just days before European leaders agreed a 750 billion euro rescue package to stabilise euro zone financial markets. "Portugal was seen as the next victim after Greece, so the short end of the curve underwent a massive widening... so the problem is you are comparing something that is totally different now the market is much more cheerful about Portugal," said Chiara Cremonesi strategist at Unicredit in London. Following are the details of the issue carried out by the Portuguese Institute for Public Credit Management (IGCP) compared to previous auction of six-month T-bills: (Previous) Auction date: 07/07/10 05/05/10 Maturity 21/01/11 19/11/10 Settlement date: 09/07/10 07/05/10 Avg. yield (pct) 1.947 2.955 Avg. price (pct) 98.951 98.417 Highest yield (pct) 1.999 3.000 Lowest yield (pct) 1.880 2.910 Tail 0.052 0.045 Total bids 1.372 bln 974 mln Allotment 762 mln 500 mln Bid-to-cover ratio 1.8 1.9 Outstanding after auction 2.812 bln 3.10 bln For more information about the auction please click on . (Reporting by Filipa Lima and Sergio Goncalves, writing by Shrikesh Laxmidas, editing by Mike Peacock)

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