(REUTERS) - Debt auctions in France and Spain gave some respite to battered Eurozone bond markets on Thursday, attracting solid demand and at lower yields than previously feared, a day after central banks took concerted action on banking liquidity.

Madrid's cost of borrowing - ranging from around 5.19 to 5.54 percent on the 4--, 5- and 6-year paper - was the highest at a government sale since before the launch of the euro, but far below yields around seven percent widely held as unaffordable.

That reflects improvement in markets over the past week which has seen Spanish rates come down around 60 basis points to a full percentage point below Italy's and France moves out of the immediate line of fire in the debt crisis.

France saw good demand at the sale of 4.35 billion euros of long-term bonds, with yields falling on both 10- and 15-year issues compared with previous auctions. The 10 year yield stood at 3.18 percent and the premium investors charge for holding its bonds over German bonds fell to 93 basis points, its lowest in a month in response.

The backdrop in general has improved since yesterday's (coordinated central bank move), said Nick Stamenkovic, bond strategist with RIA Capital Markets.

Demand is stronger than a month ago, although yields are fairly elevated. It is mildly encouraging.

It is only two weeks since Spain auctioned 10-year debt days before a general election that swept a new centre-right government to power, and saw yields hit euro-era highs of 6.975 percent.

A spike in yields earlier this month for France, due to worries over its banks and triple-A credit rating, also turned the focus onto one of the EU's two biggest economies and signaled a new stage in the crisis.

After moves by central banks to ease banking stresses on Wednesday [ID:nL5E7MU118], many hope for progress in what EU Commissioner Olli Rehn has said were critical days before a European leaders summit on December 9.

But while yields on Spanish bonds have fallen this week, they will probably not come down more substantially until clear decisions are announced to tackle the crisis.

Most market players say that still adds up to the European Central Bank stepping in to backstop struggling governments - something it and Germany continue to resist strongly.

Unless there's a sign central banks are coordinating and are prepared to do more fundamentally, is there really much to get excited about? Probably not, unless it's backed by something else, said Marchel Alexandrovich, economist at Jefferies.

HIGH DEMAND

Spain's Treasury has raised more than 90 percent of the funding it needs for this year and one commercial bank estimate saw its issuance needs next year falling to around 172 billion euros from 182 billion euros this year.

That figure could fall further should incoming Prime Minister Mariano Rajoy, set to be sworn in late December, take more austerity measures - as is expected. Borrowing costs, however, remain historically high.

At Thursday's sale the Treasury sold 1.2 billion euros of a bond maturing in 2015, 1.15 billion euros of a 2016 bond, and 1.4 billion euros of a 2017 bond at Thursday's sale.

The average yield on the 2015 bond was 5.187 percent, up from 3.639 percent when it was last sold on October 6. The yield on the 2016 bond was 5.276 percent and on the 2017 bond - 5.544 percent.

France's debt management agency - which has already covered its medium- and long-term financing needs for 2011 - was also near the top of its projected range of 3.0 to 4.5 billion euros, and saw demand rise.

The average yield on the 10-year 3.25 percent OAT fell slightly to 3.18 percent versus 3.22 percent when last auctioned on November 3 and the yield on the 15-year 3.5 percent bond fell to 3.65 percent, compared with 3.77 percent. ($1 = 0.7429 euros)

(Additional reporting by London government bonds desk, Paul Day; editing by Patrick Graham)

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