NEW YORK, April 4 (Reuters) - Citigroup (C.N: Quote, Profile, Research) on Friday sold $4.5 billion of debt, taking advantage of improved demand for U.S. corporate bonds after Federal Reserve liquidity measures relieved worries about financial meltdowns.

The debt was sold at a yield spread of 300 basis points over Treasuries, or about 5.618 percent. That was 200 basis points wider than spreads Citigroup offered on 30-year bonds it sold in May 2007 before the global credit crunch.

Still, the spreads were in line with the yield premiums that other financial companies have had to offer to sell debt in recent weeks, investors said.

A good part of the issue was absorbed by large institutional investors who have become more comfortable participating in corporate bond sales of late, said Robert Bishop, portfolio manager for SCM Advisors in San Francisco.

A recent decision by the Federal Reserve to extend financing to broker-dealers through its discount window and the rescue of Bear Stearns made a huge difference in sentiment, he said.

"The biggest issuers and some of the ones that had been under the most pressure were the broker-dealers, and all of a sudden they're too big to fail," Bishop said.

Lehman Brothers' (LEH.N: Quote, Profile, Research) success in raising capital and signs from the Fed that it will do whatever is necessary to maintain liquidity "mean the high-quality bank and finance sector is really in fundamentally much better shape than it was before," he said.

Financial companies were the best performers on a spread-tightening basis this week as the corporate bond market rallied, according to a report on Friday by Morgan Stanley.

"By now, most will agree that the fears of broker/dealer/counterparty failure and systemic liquidity seizure that gripped the markets just three weeks ago are abating, if not yet completely dismissed," Morgan Stanley analysts said.