* Telefonica raises 1.2 bln euros with 7-yr bond
* Improved sentiment aids 2nd bond issue in a month
* Issue attracts around over 8 billion euros of demand
* Telefonica faces 57 bln euro debt pile
(Adds final price, yield, background)
MADRID, Oct 5 (Reuters) - Debt-laden Spanish telecoms group Telefonica issued seven-year debt in its second cash call in a month on Friday, taking advantage of ECB-backed credit improvements in struggling euro zone countries.
Telefonica raised 1.2 billion euros of the bond at a final price of 330 basis points over mid-swaps.
Demand for the bond, due Jan. 2020 with a 4.71 percent coupon, was around 8 billion euros, according to IFR, a Thomson Reuters news and markets analysis service.
Sentiment towards corporate debt has improved since the European Central Bank outlined in early September an unlimited government bond-buying programme to help weak economies.
Spain's Prime Minister Mariano Rajoy has resisted applying for European aid, which would trigger the ECB programme, but investors' belief that such a move is inevitable has brought down premiums for the euro zone periphery and its companies.
Telefonica, eager to reduce its 57 billion euros debt pile and keep its prized investment-grade credit rating in its crisis-hit home nation, announced this week that it would list part of its German mobile business, O2.
Telefonica issued a 750 million euros five-year bond on Sept. 5 and increased the issue to 1 billion euros Sept. 7, joining other companies in peripheral Europe by taking advantage of the uptick in investor confidence and breaking a six-week debt issuance freeze.
Sentiment for Telefonica's paper sale on Friday was also supported by Spanish bank BBVA's successful sale of $2 billion, three-year bond, on Thursday, the first time U.S. investors have shown interest in buying Spanish financial risk in more than 17 months.
Telefonica mandated Bayer LB, BNP Paribas, Citi, Commerzbank, MUSI and SG CIB for Friday's issue.
The company must raise between 7 billion and 8 billion euros a year through 2015 to cover debt maturities and risks refinancing costs spiking higher if Spain loses its investment grade credit rating.
(Reporting by Clare Kane; Editing by Paul Day and David Cowell)
Keywords: TELEFONICA DEBT/BONDS