ISTANBUL: The Turkish lira weakened on Thursday, pushing the central bank to tighten the size of lira liquidity it provides the market, while bond yields inched down.
The latter were led by dip in commodity prices, improving inflation outlook.
Local shares eked out small gains, tracking the choppy trade in global markets after rating agency Moody's Investors Service cut its rating on Spanish government debt by three notches on Wednesday to Baa3 from A3.
By 0841 GMT, the lira traded at 1.8245 versus the dollar , weaker than 1.8177 late on Wednesday. Against its euro-dollar basket the lira traded at 2.0582, from 2.0532.
"The lira trades following the global markets. Investors reduced their lira buying ahead of Greece elections. The global fragile environment pushes the central bank to be cautious. Hence, it continues to lower the lira liquidity in repo auctions," said a forex trader.
Neighbouring Greeks will vote on Sunday and a victory for anti-bailout parties could push Greece towards an exit from the euro zone.
"I still expect the lira to firm towards 2.03 versus the euro-dollar basket. But the currency is still fragile," the trader said.
The central bank injected 1 billion lira ($549.90 million) into the market in a regular one-week repo auction at cheap rate fixed at 5.75 percent, lower than a 3 billion lira one-week repo maturing on Thursday, a move seen supportive the lira.
The yield on Turkey's benchmark bond maturing in March 2014 ticked down to 9.17 percent, from a previous close at 9.18 percent.
"The decline in commodity prices affects positively the bond market as it improves the inflation outlook," said Fatih Keresteci, strategist at HSBC.
Turkey is heavily dependent on energy imports to run its economic activity. Hence, a decline in energy prices is welcomed as it reduces the country's external risks due to its huge current account deficit as well as the supply-side pressures on inflation.
Oil has stood close to $97 on Thursday, around a quarter low from 2012 highs reached in March as a weak global economy has cast doubts on the outlook for fuel demand.
Turkey's annual inflation fell to 8.28 percent in May from over 11 percent previously, still standing above the central bank's year-end target of 5 percent.
Istanbul's main stock index was 0.19 percent up at 58,370 points, outperforming a 0.66 percent dip in the MSCI emerging markets index.
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