(Adds finance minister comments, new 2017 foreign currency debt target, paragraphs 3-4)

BUENOS AIRES/NEW YORK, June 19 (Reuters) - Argentina sold $2.75 billion of a hotly demanded 100-year bond in U.S. dollars on Monday, just over a year after emerging from its latest default, according to the government.

The South American country received $9.75 billion in orders for the bond, as investors eyed a yield of 7.9 percent in an otherwise low yielding fixed income market where pension funds need to lock in long-term returns.

Thanks to a stronger-than-expected peso currency, the government has increased its overall 2017 foreign currency bond issuance target to $12.75 billion from its previous plan of issuing $10 billion in international bonds, Finance Minister Luis Caputo told reporters in Buenos Aires.

Argentina is going to the international capital markets to help finance a fiscal deficit of 4.2 percent of gross domestic product this year. Caputo said Argentina has $2.6 billion in bonds left to be issued this year. The new paper could be denominated in euros, yen or Swiss francs.

The new bond had a coupon of 7.125 percent, the finance ministry said in a statement that hailed success of the sale as evidence that Argentina had regained “credibility and confidence.”

Still, the move came as a surprise given Argentina only last year ended a decade-long dispute with creditors over its 2002 default and residents tend to frown upon accumulating debt in dollars.

“Implicitly, this shows market confidence that the government will be able to change the idiosyncrasy of the country and will end the borrow and default cycles. Will it?” said Edgardo Sternberg, Emerging Market debt portfolio manager at Loomis Sayles.

BOND PRICES FALL

Argentine sovereign bond yield spreads over U.S. Treasuries widened six basis points, the widest in a month at 412 basis points. Argentina’s 2038 dollar bond fell 1.5 cents while the 2046 bond issue fell 2.6 cents.

The 2032 par bond was down by 1.5 percent.

Though the bond appeared to be well oversubscribed, some investors questioned the wisdom of investing for a such a long term in a country as volatile as Argentina.

“It’s awfully premature for Argentina to issue 100-year bonds,” said Jorge Piedrahita, chief executive officer of Puma Investments. “When you look back in history, I’m not sure we can find a 20-year period where Argentina has not defaulted.”

Citigroup Inc and HSBC acted as lead book runners on the deal, while Nomura Securities and Banco Santander were co-managers.

Such long-term bonds are unusual, particularly in emerging markets. Mexico issued a 100-year bond in 2010.

Since taking office in late 2015, President Mauricio Macri has implemented several market-friendly reforms to deliver on his promise of normalizing Argentina’s economy after years of heavy state intervention and non-payment of international debt obligations under the previous government.

He ended a decade-long dispute with creditors that allowed it to re-enter global credit markets, but Argentina lacks an investment grade rating. S&P and Fitch rate the sovereign a B with a stable outlook, while Moody’s has the debt at B3.

The country sold 400 million Swiss francs ($410.64 million)in debt in March, and Caputo said on June 7 that Argentina would issue peso and euro bonds later this month.

Many Argentines, with memories of the severe economic crisis following a 2002 default, took to social media to express their surprise, some with a touch of humor. One asked if Argentina would exist in 100 years, and another said at least cockroaches would pay off the debt.

Axel Kicillof, former finance minister who led negotiations with holdouts under populist ex-President Cristina Fernandez, accused Macri of saddling 10 generations of Argentines with debt. [bit.ly/2sL0S2f ]

“They say nothing bad can last for 100 years. The legacy of Macrismo shows it can,” he wrote on Twitter. ($1 = 0.9741 Swiss francs)