Dissolve yeast and 1 teaspoon sugar in 1/4 cup warm water; set aside.

In small bowl, beat eggs until thick.

Put flour in large bowl, making a well in the center. Into the well add yeast, eggs, 1/2 cup sugar, melted butter, milk, 1 cup water, and salt. Beat thoroughly to form a soft, smooth dough. Cover, let dough rise until doubled.

Heat oil to 375 degrees F (190 degrees C). Drop dough by big teaspoonfuls into oil, fry until golden brown. Drain on paper towels, shake in a bag of sugar to coat, and serve hot.