British 50-year inflation-linked bond draws "very strong" demand at syndication

* Britain attracts 10.1 bln stg at sale of 2065 linker

* 93 percent of demand at syndication from domestic investors

* Britain sells 2.5 bln pounds of 2065 linker

* Lowest ever yield for a bond sold via syndication (Updates with DMO details)

By Ana Nicolaci da Costa

LONDON, July 26 (Reuters) - Britain's sale of a 50-year inflation-linked government bond drew "very strong" demand in the first syndication to take place after the country's decision to leave the European Union, the UK Debt Management Office said on Tuesday.

Britain sold 2.5 billion pounds ($3.28 billion) of an index-linked gilt maturing in 2065 at a real yield of -1.3245 percent, the lowest-ever inflation-adjusted return for a bond sold via a syndicate of banks.

The sale attracted orders worth 10.1 billion pounds, prompting the debt agency to increase its inflation-linked gilt syndication programme for 2016/2017 by 1 billion pounds to 17.5 billion pounds, the DMO said.

Since the EU vote, investors have shown mostly solid demand for British government debt, which is largely considered a safe-haven asset, even though risks to Britain's economy and public finances have increased post-Brexit.

But ultra-long dated paper tends to be favoured by domestic investors such as pension funds, which need to match assets with liabilities. The DMO said 93 percent of the 2065 linker allocation was taken up by domestic investors.

"We've had bigger books but I think all things considered, that's a pretty tidy book size particularly for something which is a reopening," Marc Ostwald, strategist at ADM Investor Services said. "It (has) to do with the fact of liability-matching."

The bond sold at a yield of 0.75 basis points above that of the 0.375 percent 2062 index-linked gilt, indicating buyers were willing to pay a price at the top end of the initial guidance, as is common in British government bond syndications.

Jo Whelan, deputy head of the DMO, said "the response of our core investor base to the sale was very strong."

But prices of the 2062 and 2065 index-linked bonds fell on Tuesday as the market absorbed the new supply, underperforming conventional bonds, which have benefited from expectations the Bank of England could cut interest rates as early as next week.

At 1503 GMT the 2065 linker offered a real yield of -1.311 percent, 7 basis points higher on the day, while equivalent conventional gilts were up 2.8 basis points.

September gilt futures finished the day 25 ticks lower as they tracked German debt downwards, well off a two-week high set earlier when remarks from BoE (Shenzhen: 200725.SZ - news) policymaker Martin Weale strengthened rate cut expectations.

The 2065 linker was heavily subscribed at its launch in February, attracting 10.5 billion pounds of orders when 2.75 billion pounds of the issue was sold.

Goldman Sachs (NYSE: GS-PB - news) , HSBC, Royal Bank of Scotland (LSE: RBS.L - news) and Santander acted as bookrunners for the sale.

($1 = 0.7618 pounds) (Additional reporting by David Milliken and Andy Bruce; Editing by Catherine Evans)