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UPDATE 2-DaimlerChrysler unit's new bond trades up sharply

(Adds byline, recasts with lead manager comment)

By Richard Barley

LONDON, Sept 19 (Reuters) - German auto giant DaimlerChrysler AG raised one billion euros on Friday with a new bond which traded up sharply after launch as demand reached 3.3 billion euros, bankers said.

Launched via DaimlerChrysler North America Holding Corp, the deal was DaimlerChrysler's first fixed-rate issue in euros this year. The scarcity of new paper from the firm helped generate demand for the bonds, bankers said.

"It's a bit of a bumper deal," said one syndicate official who worked on the deal. "It's a very broadly distributed deal, which wouldn't always be the case for this kind of maturity and size."

DaimlerChrysler last sold a fixed-rate bond in euros in December 2002, although the car company has been active in the floating-rate market throughout 2003, last selling a 750 million euro two-year note in July.

The bond has a three-year maturity and pays a coupon of 3.75 percent.

Late in the morning, it was trading at 90 basis points bid over German government bonds, the banker said, sharply tighter from its 97.7 basis point launch spread, reflecting a strong bid and rising price.

The premium on offer had already been reduced during marketing by two basis points as demand built, to 83 basis points over benchmark swaps from 85 basis points -- close to trading levels on the firm's outstanding bonds.

"The new DaimlerChrysler offers little if any premium to the January 2007s, and is the first deal in the last few months to do so," said Suki Mann, credit strategist at Societe Generale, in a note to clients.

"Just a tightly priced deal, or a sign of things to come?"

The syndicate official conceded that there was not much of a new issue premium, but said the spread offered three to four basis points of pickup over the DaimlerChrysler yield curve.

And demand was across all sectors at this level, he said. "It's very successful in the sense we've got institutional investors coming in on what would normally be a retail-targeted bond," he said. Short-dated maturities tend to be favoured by retail investors.

Commerzbank, Hypovereinsbank and Royal Bank of Scotland managed the sale.

DaimlerChrysler is rated A3 by Moody's Investors Service, which affirmed its rating on the company overnight, and BBB+ by Standard & Poor's.

Moody's had been considering cutting DaimlerChrysler's rating. But the agency said in a statement it had affirmed the rating as the competitive challenges faced by Chrysler in the United States are likely to be mitigated by the group's other divisions, meaning that financial flexibility will remain in line with the A3 category.

"Despite the continued market weakness, Moody's believes that the Mercedes-Benz Car Group should continue to post significant operating profits," the agency said.