Bids at U.S. 7-year note sale weakest in six months

(Adds details on latest 7-year note auction)

NEW YORK, Aug 25 (Reuters) - Overall demand at Thursday's $28 billion U.S. seven-year Treasury note auction was the lowest in six months, resulting in a higher-than-expected yield of 1.423 percent, Treasury data showed.

The ratio of bids to the seven-year issue offered was 2.38, the lowest since February when it was 2.25. At the prior seven-year auction in July, this gauge on seven-year auction demand was 2.51.

The soft demand was evidenced by a decline in purchases from fund managers, foreign central banks and other indirect bidders, who bought 58.33 percent of the latest seven-year issue.

This was their smallest share at a seven-year note auction since February and was lower than July's 65.46 percent.

Bond dealers and other direct bidders purchased 10.39 percent of the seven-year note supply, their largest share since May. In July, they bought 7.71 percent.

With demand by indirect bidders down, primary dealers, or the top 23 Wall Street firms that do business directly with the Federal Reserve, took a larger share of the supply, at 31.28 percent.

This was their biggest share at a seven-year auction since February. In July, they bought 26.82 percent.

The larger purchase by primary dealers is seen as negative for the bond market because they often try to resell the supply quickly on the open market, which would put downward pressure on prices

The seven-year note auction was the final part of this week's $88 billion in Treasury coupon-bearing supply.

(Reporting by Richard Leong; Editing by Andrea Ricci)