Greece looked set to sell 5 billion euros ($6.7 billion) in the first test of investor appetite since a European-IMF debt support deal last week but demand was less than half that of an issue earlier this month.

Order levels on the new bond stood at around 7 billion euros compared to the more than 16 billion euros in interest shown for a benchmark 10-year paper, which eased some of the nerves over Greece's financing in early March.

About 175 institutions bid for a slice, sources at the lead managers said, compared to 400 investors for the 10-year issue.

It is Easter week in Greece and Europe and this explains why demand may seem a bit softer, with the book growing at a slower pace compared to the previous 10-year bond issue, said a source at one of the five banks leading the issue.

Guidance on the bond was set around mid-swaps plus 310 basis points, sources at the lead underwriters said, still around levels which Greek officials have said are unsustainable for the state's finances in the long run.

Confidence in Greece as a borrower has been badly shaken by a 300 billion euro ($403 billion) debt pile that exceeds the country's 240 billion euro economic output and by revelations that the extent of its budget problems had not been reported.

Greece, rated A2 by Moody's and BBB+ by Fitch and Standard & Poor's, has about 23 billion euros worth of bonds -- equivalent to almost 10 percent of its gross domestic product -- maturing between now and the end of May.

Some obligations could be met from cash reserves of 7 billion euros, debt agency chief Petros Christodoulou has said, leaving him at least 16 billion euros to raise in the coming weeks during a debt crisis that has shaken global markets.

PDMA said it had mandated Alpha Bank, Emporiki Bank, ING, Bank of America Merrill Lynch and Societe Generale for the 7-year bond, its third syndicated issue so far this year.

Christodoulou declined to say how big the bond would be but told Reuters he hoped it would be of benchmark size. A source at one of the underwriters said the government was looking to raise 5 billion euros.

Before the announcement, the 10-year Greek/German yield spread tightened 4 basis points to 311 basis points, according to Tradeweb data.

That was better than 323 basis points ahead of Thursday's deal offering the prospect of a last-resort bailout and well below a January peak of 405 but means Greece is still paying interest rates on new issues about twice those of Germany.

The current Greek 7-year benchmark bond with a coupon of 4.3 percent is yielding 6.01 percent.

The 10-year bond earlier this month was priced at 300 basis points over mid-swaps and was more than three times oversubscribed with demand reaching over 16 billion euros from more than 400 investors.

So far this year it has raised about 18 billion euros out of a 53.2 billion euro projected need for 2010.

($1=.7439 Euro)

(Writing by Paul Hoskins, editing by Patrick Graham)