(Adds details and context on operation)

CARACAS, Sept 26 (Reuters) - Venezuelan state oil company PDVSA on Monday sweetened the terms of a bond swap proposal that had drawn market skepticism, offering more 2020 bonds in exchange for bonds maturing in 2017, part of an effort to improve the company's cash-flow situation.

PDVSA this month offered to swap $7.1 billion in outstanding issues for a new bond to be backed by its U.S. subsidiary Citgo Holding Inc at a one-to-one ratio, which some bondholders described as unattractive.

The exchange ratios will now be 1.17 new 2020 bonds for each PDVSA 2017 bond maturing in April, and 1.22 new bonds for each PDVSA 2017N bond maturing in November 2017 if investors participate before Oct. 6, the company said in an emailed press release.

Investors participating after that date will receive slightly less attractive ratios of 1.12 for the April maturity and 1.17 for the November 2017 maturity. The operation closes on Oct. 14.

Under the new terms, PDVSA now expects to pick up only 75 percent of the total outstanding 2017 bonds, or a total of $5.325 billion, rather than the entire $7.1 billion.

The prices of PDVSA bonds see-sawed in the wake of the swap announcement, as investors struggled to understand the details of the proposal and to put a value on the guarantee.

Rumors had circled for days that PDVSA was planning an adjustment to terms draw in more participants.

The company is struggling under low oil prices and an unraveling socialist economic system that has led to triple-digit inflation and chronic product shortages in Venezuela.

The swap is meant to ease hefty amortization payments between now and the end of next year, improving the company's cash flow and reducing the probability of a default.

PDVSA has promised it will honor bond commitments no matter the fate of the swap, and investors broadly believe it will continue making debt payments because the government does not want to be isolated from the global financial system.

PDVSA and Venezuelan President Nicolas Maduro dismiss default talk as a smear campaign by adversaries to weaken the government.

(Reporting by Brian Ellsworth and Corina Pons; Editing by Sandra Maler and Leslie Adler)