* Portugal worries about BES group have regional reverberations
* Greek three-year debt sale sees lacklustre demand
* Irish, Spanish sales go smoothly as markets differentiate (Adds details of sale, quotes.)
By Marius Zaharia
LONDON, July 10 (Reuters) - Renewed concerns about the health of a parent company of Portugal's largest bank hurt peripheral euro zone bonds on Thursday, curbing demand at Greece's second debt sale following its 2012 default.
It was the first significant episode of contagion for peripheral markets this year.
Ultra-easy European Central Bank policies contained any broad sell-off in the first half of 2014, when peripheral debt yields reached record lows. That allowed those countries to sell debt easily, regardless of their ratings or economic hurdles.
Espirito Santo Financial Group, the largest shareholder in Portugal's Banco Espirito Santo, said on Thursday it had decided to suspend its shares and bonds, citing "material difficulties" at its parent company, ESI.
Sources told Reuters on Wednesday the Espirito Santo group is considering debt-for-equity swaps and may ask for more time to repay debts, as it grapples with the financial problems.
The government in Lisbon has repeatedly said that BES is isolated from the holding company's problems and there is no risk to public finances. However, the turmoil has led to a sharp sell-off in Portuguese government bonds and had repercussions for other markets as well.
Greece's sale of a three-year bond has so far been met with demand of more than 3 billion euros, according to IFR, a Thomson Reuters service. For many in the market, used to seeing order books several times that size at a peripheral debt sale, this was a lacklustre figure.
Guido Barthels, chief investment officer at Luxembourg-based Ethenea, is one of the investors who were initially interested in the sale but were put off by what was happening in Portugal.
"It is not a good day to come to the market for Greece," Barthels said. "Given what's happening in Portugal, it does not make a whole lot of sense to touch that."
Yields on Portuguese 10-year bonds rose 21 basis points to 4.01 percent, dragging their peripheral peers with them. Greek yields were 14 bps higher at 6.25 percent. Spanish and Italian yields rose 6 bps to 2.82 and 2.94 percent, respectively.
Barthels still expected Greece to be able to sell the planned amount within its initial yield guidance of 3.50-3.625 percent. That is were higher than those offered by all 10-year euro zone bonds apart from Portugal's.
Investors in Italian debt, for example, would have to buy a 15-year bond to get a higher yield than Greece's three-year paper. German 30-year paper offered 2.16 percent.