March 29 (Bloomberg) -- Uruguay sold $500 million of 20- year, inflation-linked peso bonds in international markets.

The government sold the bonds to yield 4.25 percentage points over inflation, Economy Minister Danilo Astori told reporters in Montevideo. Deutsche Bank Securities and Merrill Lynch & Co. managed the sale. The peso bonds will be payable in U.S. dollars based on the average interbank exchange rate published by Uruguay's Central Bank.

``It's a fair price,'' said Adam Weiner, who oversees emerging-market debt at OppenheimerFunds Inc. in New York.

Demand for the bonds was $1.4 billion, Astori said. Investors from the U.S. bought 70 percent of the issue, European investors 15 percent and Latin American investors 15 percent, he said.

Uruguay had its credit rating raised in December two levels to B1 by Moody's Investors Service as a four-year-old economic expansion bolsters government revenue. Standard & Poor's raised Uruguay's rating to B+ in September. Both ratings now are four levels below investment grade.

Last Updated: March 29, 2007 17:59 EDT