* EU completes most of SURE fundraising
* Receives 88 bln euros of demand for 8-, 25-year bonds
* Focus will turn to recovery fund issuance (Updates prices)
By Yoruk Bahceli
May 18 (Reuters) - The European Union launched bonds on Tuesday that will complete the bulk of funding for its SURE unemployment scheme against a tough market backdrop that saw government bond yields hit multi-month highs a day earlier.
The EU will raise 14.137 billion euros ($17.25 billion) from new eight and 25-year social bonds on Tuesday on the back of nearly 89 billion euros of demand, a lead manager memo seen by Reuters showed.
With less than 5 billion euros of planned issuance remaining to total 94.3 billion euros, the bonds will complete the vast majority of its funding for the SURE scheme and pave the way for the EU to begin issuance to fund its up to 800 billion euro recovery fund expected to start in the summer.
That will mark much more meaningful EU debt issuance that investors hope will create a euro zone safe asset.
Antoine Bouvet, senior rates strategist at ING, said the key takeaway from SURE going into the recovery fund issuance was that "demand for the name EU is strong, and proportional to the amount of debt they have to sell".
"There was a hype factor that has somewhat faded but this is understandable. Remember that (the recovery fund) will also carry out auctions so, more and more, EU issuance will resemble that of a sovereign treasury with an undramatic issuance process."
The sale follows a big sell-off in euro area government bonds on Monday driven by speculation that the ECB may slow its pandemic emergency bond buying and concerns over Italy's economic reform path.
That drove Italy's bond yields to their highest in more than eight months on Monday, while "semi-core" bonds including from France, as well as supranational issuers such as the EU, underperformed benchmark German ones. Bond yields move inversely with prices.
Euro zone bond markets were calmer on Tuesday, with Germany's 10-year yield, the benchmark for the region, up 0.5 basis points to -0.11% by 1525 GMT.
Italian 10-year yields were down 2 basis points to 1.09%.
Demand for the EU bonds was similar to the last SURE issuance in March, despite the rise in euro area bond yields since.
The eight-year bond will price for a yield of around 0.01% and the 25-year around 0.74%, according to Reuters calculations based on the memo. But the EU is having to pay a higher new issue premium on top of its existing bonds compared with what it has usually paid since SURE issuance started in October, Commerzbank strategist Michael Leister said.
Elsewhere, Finland hired a syndicate of banks for a 3 billion euro, 10-year bond sale, two lead managers said.
Germany's top court on Tuesday rejected a complaint against the European Central Bank's conventional public sector bond purchases. ($1 = 0.8193 euros)
(Reporting by Yoruk Bahceli; editing by John Stonestreet, Angus MacSwan, Kirsten Donovan and Barbara Lewis)