(Adds analysts' comments and VIX close)

By Doris Frankel

CHICAGO, April 1 (Reuters) - The Chicago Board Options Exchange Volatility Index .VIX fell sharply on Tuesday as strong demand for a stock offering by Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research) helped restore confidence in the financial sector.

The VIX, Wall Street's main barometer for assessing investor fear and the measure of implied volatility in the Standard & Poor's 500 index .SPX, kicked off the start of a new quarter at its lowest level in more than a month.

The index dropped 11.44 percent to finish at 22.68.

The VIX is viewed as a contrary indicator and generally runs inversely to the S&P benchmark.

It sank as the S&P 500 index rallied on hopes that credit concerns in the financial sector are now on the back burner.

Finance stocks got a boost after Lehman raised $4 billion of capital after an offering of convertible preferred shares and news that Swiss investment bank UBS AG (UBSN.VX: Quote, Profile, Research)(UBS.N: Quote, Profile, Research) wrote down an additional $19 billion on U.S. real estate and related assets.

"With the start of the quarter, there seems to be renewed bullishness out there," said Randy Frederick, director of derivatives at Charles Schwab & Co Inc., in Austin, Texas.