UPDATE 1-Russia taps Eurobond market amid increased political tensions

(Adds detail, background)

MOSCOW, March 16 (Reuters) - Russia tapped the global Eurobond market on Friday, setting yields below initial guidance, which indicated demand for the paper was strong despite recently escalating tensions with the West.

Russia's Eurobond placement could become a test for global investors' appetite for Russian assets amid geopolitical rumbling.

But given the anonymity that Eurobonds provide, many of the buyers could be Russians. The finance ministry, which does not identify buyers of the Eurobond, has not yet disclosed a geographic breakdown of the sources of demand.

The finance ministry offered the global market $1.5 billion worth of a new dollar-denominated Eurobond maturing in 2029 and a $2.5 billion top-up for a series maturing in 2047 that has already been in circulation.

The finance ministry had planned to offer the market $4 billion worth of Eurobonds with lower coupons to swap them for its more expensive benchmark 2030 Eurobond in an effort to bring down its debt-servicing costs.

The finance ministry set its final guidance for the yield on the new 2029 issue at 4.625 percent, below the initially announced guidance of 4.75 percent. For the top-up sale of the 2047 bonds it set yield guidance at 5.25 percent, also below the initial guidance of 5.5 percent.

As yields move in the opposite direction from bond prices, lower yields suggest demand exceeded the amount on offer.

Holders of Russia's sovereign Eurobond maturing in 2030 have offered to swap a combined $7.658 billion for other debt issues from the Russian finance ministry, Interfax news agency said on Friday citing a source.

Demand for Russian Eurobonds could have been spurred by S&P Global's recent credit rating upgrade for Russia ahead of the March 18 presidential election that President Vladimir Putin is set to win easily.

Many buyers of the Eurobond could be Russian investors. Last year Putin ordered that Eurobonds be offered to help Russians holding capital abroad bring their money home.

The finance ministry promised to give preference to Russians when selling sovereign Eurobonds.

Wealthy Russians facing the prospect of targeted U.S. sanctions had floated the idea of a special treasury bond to help create favourable conditions for them to bring their cash home. Unlike with bank accounts, future holders of Eurobonds can remain anonymous. (Reporting by Andrey ostroukh Editing by Peter Graff)