* Ireland nets more than expected as demand tops 7 bln euros
* Yield seen at 3.32 pct vs 5.9 pct in initial July issue
* Deal marks a further step to Irish bailout exit
DUBLIN, Jan 8 Ireland sold 2.5 billion euros ($3.3 billion) of debt on Tuesday, raising a quarter of the 10 billion euros it aims to borrow in 2013 ahead of a planned exit from its EU/IMF bailout.
Ireland had said on Monday it would kick off the funding plan by reopening the 2017 bond it issued last July. That 3.8 billion euro sale marked the country's return to the long-dated debt market following its EU/IMF rescue in November 2010.
The National Treasury Management Agency (NTMA), Ireland's debt agency, had hoped to sell around 2 billion euros but netted more after orders topped 7 billion euros.
"There was very strong demand from a lot of the big pension funds, asset managers and real money accounts. This isn't domestic accounts or hedge funds leading the charge, and that will be encouraging for the NTMA," said Owen Callan, a bond dealer at Danske Bank, one of the lead managers for the deal.
"To get 25 percent of issuance for the year away in the first week of January means they are well ahead of the curve and bodes well for the future. It shows that investors very much believe in the Irish recovery story."
Bumper demand also allowed the debt agency to tighten pricing on the deal, its first syndicated issue in three years, trimming the yield to 3.32 percent from 3.45 percent indicated at launch.
That is less than the 3.5 percent charged on its aid loans and well below a 4.7 percent average cost of funding for Ireland in the months before it requested the bailout.
Ireland was locked out of bond markets in September 2010 as it wrestled with the largest budget deficit in the euro zone and struggled to draw a line under a costly bank rescue, and was the second country to seek aid from the bloc.
Tuesday's deal also saw some investors return to the Irish debt market after a two-and-a-half year hiatus, one trader said.
The 2017 paper was initially sold in July at a yield of 5.9 percent but demand for Irish debt has since pushed its yields below those of Spain, seen as a likely candidate for a bailout.
Finance minister Michael Noonan said he still thought the interest rate was high and that Ireland's objective was to raise money at lower interest rates going forward
The NTMA said international investors represented 87 percent of buyers, with just over a third sold in the UK and 12 percent in Scandinavia. U.S. and Asian buyers took less than 4 percent.
Central bank governor Patrick Honohan said on Tuesday that the fall in borrowing costs still represented scant reward for Ireland, however, given the massive budget adjustments - equivalent to 18 percent of annual output - made since 2008.
Dublin's steady progress in meeting targets set under its bailout and a more stable environment across the euro zone, also allowed Ireland to undertake two bond swaps last year and sell its maiden amortising bond issue and a number of treasury bills.
That helped slice 10 billion euros off the country's post-bailout funding needs, and the NTMA said in November it would seek to raise another 10 billion euros this year in preparation for 2014.
Ireland and its bailout lenders are also examining what additional support measures could be put in place to smooth its exit from the bailout, including gaining access the European Central Bank's new bond-buying programme.
ECB policymakers have said Ireland must regain full bond market access to qualify for its Outright Monetary Transactions scheme, criteria that analysts said could be fulfilled as soon as the second quarter by plans to restart monthly auctions.
"Access to the ECB's bond purchasing programme is an important component in Ireland's recovery," said Ryan McGrath, a bond dealer at Dolmen Securities. "Monthly or bi-monthly auctions along with at least one syndicated auction should be enough to demonstrate regular market access."
The Pentagon releases photographs linked to allegations of abuse of detainees in Iraq and Afghanistan.