ISTANBUL: The Turkish lira strengthened and shares rose on Monday on relief about the euro zone's rescue package for Spain, allowing the central bank to ease up on its efforts to support the currency and offer cheaper funds at a repo auction.
Data showing a narrowing in Turkey's current account deficit, a major vulnerability for the fast-growing economy, was broadly in line with expectations but supportive for the lira.
Over the weekend, euro zone finance ministers agreed to lend Spain more than an initial audit suggests it is likely to need for its banks, relieving some fears in financial markets over Europe's debt crisis.
By 0738 GMT, the lira traded at 1.8156 versus the dollar , firmer than 1.8275 late on Friday. On Thursday, the lira had hit 1.8176 per dollar, its strongest level against the dollar since May 17.
Against its euro-dollar basket the lira traded at 2.0517, from 2.0533.
"The lira firmed below 1.80 versus the dollar in early trade on the back of the global optimism. The currency's strengthening may push companies to buy dollars. This may temporarily prevent the lira from firming further. However, in the afternoon it can test 1.80 down side as companies' dollar buying would diminish," said Fatih Keresteci, a strategist at HSBC.
Turkish companies buy dollars to pay their import bills.
Turkey's current account deficit narrowed to $4.96 billion in April from $6.121 billion a month earlier, central bank data showed on Monday, just above a Reuters poll forecast for a deficit of $4.847 billion.
Following the lira's strengthening, the central bank opted to provide lira into the markets in a repo auction where the interest rate is fixed at a relatively cheap 5.75 percent.
The central bank uses an unorthodox mix of policies, including daily liquidity management, high reserve requirement ratios and overnight interest rates, to try to rein in inflation and the current account deficit.
Istanbul's main stock index climbed 1.32 percent to 58,080 points, broadly in line with a 1.82 percent rise in the MSCI emerging markets index.
Turkey is heavily dependent on energy imports, and analysts at Ekspres Invest wrote: "The overnight increase in commodity prices may cause Turkey to lag peers in an uptrend today."
Some analysts said global relief may be short-lived, because a Greek national election on June 17 could trigger Athens's exit from the euro zone, further damaging world investor sentiment and demand for Turkey's exports in euro zone markets.
The yield on Turkey's benchmark bond maturing on March 5, 2014, stood at 9.10 percent, from a previous close at 9.14 percent.
"The benchmark yield declined to 9.10 percent following the recovery in global markets. It is possible the yield falls permanently below 9.10 percent to test the psychological 9 percent in the period ahead," wrote analysts at Halk Invest.
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