UPDATE 2-Russia trumpets strong foreign demand for Eurobonds

* Russia issues two tranches of dollar Eurobonds

* Raises $3 billion, sees demand exceeding $6 billion

* Foreigners buy 85 pct of bonds offered, finance minister says

* Eurobond placement seen as Moscow's move to defy sanctions

* Yields outweigh sanctions-related risks - market players (Changes headline, adds quotes from Russian finance ministry, analysts)

MOSCOW/LONDON, June 21 (Reuters) - Global bond investors showed strong demand for Russia's new Eurobond, as the yields offered by Moscow eclipsed political risks, including signs that Western sanctions may get tighter.

The finance ministry on Tuesday placed a two-tranche Eurobond, raising $3 billion. Market sources told Reuters order books had topped $6.6 billion, a deal that Russia is painting as a victory over restrictive geopolitics.

The deal - and investor enthusiasm - came just days after the U.S. Senate voted to impose new sanctions on Russia, extending curbs put in place in 2014 to punish Moscow for its role in the Ukraine crisis.

It is the second year in a row Russia has raised money overseas while under the shadow of sanctions.

Finance Minister Anton Siluanov said foreign investors had bought 85 percent of the new Eurobonds.

"There was strong demand from foreigners, particularly from America," Siluanov said on Wednesday.

Andrey Kostin, the head of the Russian state-run bank VTB, told reporters in London on Tuesday that "so far the investment world has decided that (sanctions are) not a significant factor ,especially since it's fixed income and there should be significant returns."

VTB, itself under U.S. and European sanctions, acted as the sole book runner for the deal.

Russia's decision to place the bonds was "a clear political move from Moscow to drive a hole through the sanctions regime by demonstrating an ability to issue cheaply despite sanctions and to secure significant participation from Western institutional investors," said Tim Ash, a strategist at BlueBay Asset Management.

The bond was also helped by the huge investor demand for high-yielding securities.

Russia's bond came a day after Argentina - with a credit rating well below Russia's - debuted on the so-called "century bond" market with $2.75 billion of 100-year debt, just over a year after emerging from its latest default.

Andrei Solovyov, head of debt capital markets at VTB Capital, said U.S. investors had accounted for the bulk of foreign buyers.

The new bonds are trading steady to slightly firmer despite a steep decline in oil prices that's weighing on most energy exporters' issues.


Raising $1 billion in a 10-year sovereign Eurobond issue, Russia is paying a coupon of 4.25 percent. That's nearly twice as high as 2.17 percent offered by 10-year U.S. Treasuries but below the 4.75 percent it paid while placing a 10-year $1.75 billion Eurobond last May.

The 30-year bond coupon is 5.25 percent.

"Those are the lowest coupon rates in the whole history of Russian sovereign Eurobond issues," VTB's Solovyov said.

Some investors reckon the sanctions may even have boosted the market for Russian Eurobonds, as they kept Moscow out of international bond markets in 2014 and 2015 and reduced the supply of Russian hard currency debt.

Russia's rock-bottom public debt levels are also attractive to investors.

"We think the pricing is fair on both tranches, it's good timing for Russia to issue as despite low oil prices there is access to cheap financing. The market thinks their fiscal stance is sustainable," said JC Sambor, deputy head of EM fixed income at BNP Paribas Asset Management in London.

However, with the sanction pattern generally unchanged from 2016, a Russian deal remains off-bounds for several Western banks and asset managers. In early 2016, some U.S. banks were advised not to help Russia launch the issue.

A couple of U.S. banks did not reply to Reuters requests for comment, while a chief economist at one of the U.S. banks said he was not allowed to speak on the matter, even off the record.

An investor at a German asset manager said by email his fund would not participate in the primary market.

"The reason is more compliance-related. Since VTB as a sole book runner is a sanctioned entity in the EU, this will make an investment in the primary market a very complicated task," the person said, speaking on condition of anonymity.

He said, however, that the fund may consider buying the Eurobonds on the secondary market once trading started. (Additional reporting by Elena Fabrichnaya, Daria Korsunskaya in Moscow and Dasha Afanasieva in London; Editing by Larry King)