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UPDATE 1-Austria joins ultra-long bond foray with first 70-year issue

(Corrects reference to 16-month high to towards four-month highs, in paragraphs 1, 8 and 9)

* Average maturity of euro zone countries' debt http://bit.ly/2c2HQYH

By John Geddie

LONDON, Oct (HKSE: 3366-OL.HK - news) 25 (Reuters) - Austria's government borrowing costs pushed towards four-month highs on Tuesday as the country sold a 70-year bond, the longest debt issued publicly by a euro zone government.

Vienna has gathered over 5 billion euros of investor interest in the bond, banks running the deal said on Tuesday, as well as nearly 5 billion euros more on a new seven-year bond it is also selling.

Yields on outstanding bonds tend to rise ahead of debt sales as investors make room in their portfolios for the new supply.

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The Alpine (Other OTC: APNI - news) republic is set to join a raft of other euro zone countries that have tapped historically low rates and an investor hunt for yield to issue ultra-long dated bonds this year.

Italy, Spain, France and Belgium have all sold 50-year bonds this year via syndications, where banks place the bonds with a wide group of investors, while Belgium and Ireland (Other OTC: IRLD - news) issued 100-year paper in smaller private placements.

"It is safe to say that the length ... is a surprise to the market although we have flagged repeatedly since the start of the year the positive environment for long-dated supply," Mizuho strategist Peter Chatwell said.

Austria's 30-year bond yield edged up to 1.03 percent on Tuesday, extending a 6 basis point rise from Monday after the announcement of a possible deal on Monday. Yields were not far from four-month highs of 1.09 percent hit earlier this month.

Its longest outstanding bond - debt maturing in 2062 that was originally sold as a 50-year in 2012 - rose by a similar amount to hit 1.22 percent, near four-month highs of 1.25 percent struck just over a week ago.

Analysts at ING expect Austria to issue around 1.5 to 2 billion euros of the new 70-year bond, given it was able to raise 2 billion euros in 2012 with a 50-year bond.

The trillions of euros the European Central Bank has spent trying to revive the bloc's low inflation outlook has pushed rates to record lows over the past year.

This has provided a golden moment for euro zone countries to extend the average maturities of their debt, and build up insulation against any future repayment crunch like the euro zone crisis.

Low rates have also seen a wide variety of investors buy up these ultra-long bonds, not just the institutional investors such as pension and insurance schemes which typically target them to bulk up returns on their fixed income investments.

Some asset managers have purchased these bonds for the outsized capital gains they offer in case the euro zone is sinking towards a Japan-style decade of deflation.

Other speculators have bought them up betting that the ECB may add ultra-long debt to its asset-purchase stimulus scheme if it, as expected, decides to continue quantitative easing beyond its scheduled end in March 2017.

Elsewhere in Europe, Finland sold around 1 billion euros of a bond maturing in 2031 on Tuesday, while Britain was also selling long-dated debt in a key test of investor demand in the UK after its June vote to leave the EU.

For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

(Editing by Mark Heinrich)