* Greece seven-year bonds to price at 3.5 pct yield

* Greek PM Alexis Tsipras welcomes “huge demand”

* Orders reached 7 billion euros at one stage - official (Adds final details, investor quote)

LONDON/ATHENS, Feb 8 (Reuters) - Greece launched its much-anticipated new bond on Thursday, drawing strong investor demand for the seven-year deal despite the volatility in world markets.

In its first issue since a debt exchange last November, the country was set to raise 3 billion euros at a yield of 3.50 percent. At one stage, it received 7 billion euros of orders, a Greek government official said.

“It’s a very good result. It proves that our decision to wait a couple of days was right,” the official told Reuters.

On Monday, Greek authorities said in a regulatory filing they were planning the sale of the seven-year bond. Such announcements are usually followed by a launch the next day, but Tuesday’s stock market crash forced the debt agency to wait.

“The most important thing is that we have more long-term investors compared to the two previous (deals),” the official added, referring to those conducted in July and November last year.

Greek Prime Minister Alexis Tsipras welcomed the response from investors.

“We had good news from the markets, the transaction is going well, there is huge demand ... we are on a very good track,” he said during a televised meeting with European Commissioner for Economic and Financial Affairs Pierre Moscovici in Athens.

The bond is seen as a litmus test for Greece, which is due to exit its 86-billion-euro bailout in August but has been uncertain about how much private sector interest it can attract.

A measure of the success of this deal would be the participation of longer-term big-money investors, rather than risk-tolerant hedge funds.

Having made its bond market return in July last year and conducted the exchange in November, Athens is hoping to build out its debt profile with longer-dated issuance.

‘ATTRACTIVE’

Greek government bonds are rated “B” or below by the main ratings agencies, deep in junk territory.

But the 3.75 percent yield of Thursday’s issue lured investors.

“I literally just put in some orders. It definitely looks attractive,” said a hedge fund manager who spoke on condition of anonymity as he is not authorised to talk to the media.

“In the longer term, progress has been made but I doubt anyone is putting in orders thinking the longer-term picture is fixed – this is a mixture of sovereign guys trying to find some yields and high-yield guys like us trying to make a quick buck.”

By afternoon, a banker managing the deal said the size of the deal was set at 3 billion euros and the final yield was set at 3.50 percent, well below the initial marketing level of 3.75 percent. The final order book was over 6 billion euros, including 320 million euros of interest from lead managers, said the banker.

This is less than the demand reported earlier in the day, though it is normal for some orders to drop out when the price is revised.

Nick Wall, a fixed income portfolio manager at Old Mutual Global Investors, said he is positive on Greece and is underweight other Southern European government bonds compared to Greece.

For instance, he said he reduced Italy bond positions in November. “In terms of spreads between Greece and Italy, Italy looked too wide and we thought Italy is a more of an ECB play while Greece has not had bonds bought by the ECB and it is an improving story,” he said.

News from Germany on Wednesday that the pro-Europe, pro-spending Social Democrats (SPD) are set to take charge of the Finance Ministry in a German coalition government also helped boost demand for southern European government debt, including Greece.

Speaking to Reuters earlier this year, Alberto Gallo, a portfolio manager at Algebris, a hedge fund that is a long-term investor in Greece, said: “A coalition with the SPD means more willingness to find a long-term solution as the SPD is pro-European and for European policy.”

The deal is set to price later on Thursday, and is being managed by Barclays, BNP Paribas, Citigroup, JP Morgan and Nomura. (Reporting by Abhinav Ramnarayan and Lefteris Papadimas; Additional reporting by Karolina Tagaris in ATHENS and Sujata Rao in LONDON; Editing by Janet Lawrence)