MADRID, Nov 17 (Reuters) - Spain's Santander SAN.MC has sold $2.5 billion worth of contingent convertible (CoCo) bonds in its first issuance of Additional Tier One (AT1) bonds in 2023 as the market gradually recovers.

The interest rate was set at 9.625% for both a 5-1/2 year issuance of $1.15 billion and a 10-year of $1.35 billion, it said late on Thursday.

Demand totalled $8 billion, according to a source with knowledge of the matter.

A decision by the Swiss regulator in March to write down $17 billion worth of Credit Suisse AT1s as part of a forced takeover by UBS UBSG.S roiled the AT1 market, raising questions about its future.

This month UBS started selling AT1 bonds for the first time since then.

In September, Santander decided not to call a 1 billion euro ($1.09 billion) contingent convertible bond after the deadline for its redemption expired, which was seen as a setback for the risky bond market.

The next deadline on whether to call that CoCo is Dec. 29.

Also in September, Spain's BBVA BBVA.MC sold $1 billion in AT1 bonds in its second issuance in 2023.

Santander's two CoCo issuances qualify as tier 1 capital of Banco Santander.

These instruments are perpetual but may be called under certain circumstances, it said.

They would be converted into newly issued ordinary shares of Banco Santander if the common equity tier 1 (CET1) ratio of the bank or its consolidated group were to fall below 5.125%.

As of September 30, the fully loaded consolidated CET1 ratio of the bank was 12.3%.

The bank said it would request the admission of the CoCos to trading on the New York Stock Exchange.

($1 = 0.9205 euros)

(Reporting by Jesús Aguado; editing by Jason Neely)

((jesus.aguado@thomsonreuters.com; +34 91 835 68 32; Reuters Messaging: Reuters Messaging: jesus.aguado.reuters.com@reuters.net))