UPDATE 1-Telefonica reports solid demand for bond issue

* Telefonica to raise 1.2 bln euros with 7-yr bond

* Enjoys improved investor sentiment, 2nd bond in month

* Issue attracts around 8 billion euros of demand

* Telefonica faces 57 bln euro debt pile

(Adds pricing, demand, detail)

MADRID, Oct 5 (Reuters) - Debt-laden Spanish telecoms group Telefonica issued seven-year debt on Friday, IFR reported, in its second cash call in a month, taking advantage of ECB-backed credit improvements in struggling euro zone countries.

Telefonica aimed to raise 1.2 billion euros ($1.56 billion) of the bond at a price of 330 basis points over mid-swaps, the lead banks on the deal told 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.

The issue, set to mature Jan. 2020, attracted around 8 billion euros of investor demand, IFR said.

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.

Spain's government has resisted calls to apply for European aid, which would trigger the ECB plan, prompting some economists to claim that bond yields would soon begin to return to unsustainable levels.

Telefonica mandated Bayer LB, BNP Paribas, Citi, Commerzbank, MUSI and SG CIB for Friday's issue, according to IFR.

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.

($1=0.7689 euros)

(Reporting by Clare Kane; Editing by Paul Day and Mike Nesbit)

((clare.kane@thomsonreuters.com)(+34 91 585 2130 Reuters Messaging: clare.kane.thomsonreuters.com@reuters.net))