UPDATE 2-Demand high at French, Spanish debt auctions despite downgrade, scandal
* Yields fall on Spanish paper, mixed for France
Demand solid before summer lull
* U.S. Fed helps ease investor nerves for core markets
By Paul Day and Leigh Thomas
MADRID/PARIS, July 18 (Reuters) - Investors shrugged off political scandal in Spain and a credit downgrade in France on Thursday, queueing up at bond auctions having been persuaded by the U.S. Federal Reserve that cash is not about to dry up.
Support also continued to come from pledges by the European Central Bank to buy bonds from any euro zone country in trouble in certain circumstances.
The Spanish Treasury sold 3.1 billion euros ($4.1 billion) at a triple bond sale, topping the target range of 2 billion to 3 billion euros and with average yields lower on all three issues.
The yield on the benchmark 10-year bond fell to 4.723 percent from 4.765 percent when it was last sold a month ago, and also on the two shorter-term bonds, while demand rose on the bonds due 2013 and 2018.
In France, debt agency Agence France Tresor sold 9.23 billion euros of fixed rate, medium-term bonds as well as three lines of inflation-linked bonds, with investors putting in bids for two to three times the amount on offer.
The rate on the five-year benchmark bond fell to 1.09 percent from 1.24 percent the last time it was sold in June, while the two-year benchmark yield fell to 0.31 percent from 0.50 percent at the June auction. A four-year bond saw its yield rise to 0.66 percent from 0.49 percent when it was last on offer in mid-May.
On Wednesday, Federal Reserve Chairman Ben Bernanke left the door open to changing U.S. plans to reduce monetary stimulus, easing recent concerns of an imminent and abrupt end to the programme.
Also helping boost demand, Madrid has issued more than 73 percent of its full-year medium- and long-term debt programme while the auction on Thursday was Paris' last outing to international debt markets until after the August summer break.
"To some extent for French debt, this is a seasonal factor which always comes in to play this time of year ... while for Spain the auction size was a bit lower than usual, so we need to take the results, which were good, with a pinch of salt," rate strategist at BNP Paribas Ioannis Sokos said.
The French auction followed Fitch cutting France's sovereign rating by one notch last week, stripping the country's debt of its last major triple-A rating.
"With Spain, it just takes an ugly headline on the political scandal case and this thing can be derailed easily," Sokos said.
A former treasurer from Spain's ruling People's Party is in jail and faces criminal charges after stashing as much as 48 million euros in Swiss bank account.
Although a political headache for Prime Minister Mariano Rajoy, it has yet to affect investment.
"The party finance scandal that's rocking the Rajoy government is, for the time being, a non-event as far as sentiment towards Spain is concerned," said Nicholas Spiro, managing director at Spiro Sovereign Strategy.
For details of the two French auctions:
For details on the Spanish auction: