ISTANBUL: The Turkish lira struck a new low against the dollar on Monday and bond yields rose amid continued risk aversion, but shares climbed from last week's lows as speculation the ECB might cut interest rates eased concerns over the euro zone debt crisis.
The lira closed at 1.8490 versus the dollar on the interbank market compared with a previous close of 1.8310, having slumped to its lowest-ever level of 1.8600 in late trade.
"European debt problems as well as the risk of recession in the US economy trigger selling pressures on the market. However, the amount that the central bank sold in its daily forex auction was not enough to feed the market's liquidity needs," said Tufan Comert, a strategist at Garanti Securities.
The Turkish Central Bank sold $140 million at a forex-selling auction on Monday.
"Dollars sold by the central bank meet only public institutions' demands. Besides, households don't sell dollars, which accelerates the weakening of the lira," Comert added.
Turkey's benchmark May 15, 2013 bond yield closed at 8.67 percent, up from Friday's close of 8.5 percent.
"The deterioration on global markets and the lira's weakening pushed bond yields to higher levels," said a manager at the treasury marketing unit of a bank in Istanbul.
"This time local banks prefer to monitor developments instead of buying bonds. We see funds leaving Turkey. However, I still think yields could diminish below the 8.50 level in the medium term due to the slowdown in the economy (and) hence in inflation."
There was no market reaction to Monday's data.
Turkey's manufacturing confidence index rose to 112.4 points in September from 109.8 points a month earlier, while the capacity utilisation rate rose to 76.2 percent in September from 76.1 percent in August, the central bank said on Monday.
"The depreciation of the lira seems to be supporting exporters, despite the weakness in the euro zone. However, considering the global downturn, one cannot be too optimistic on the export performance," wrote analysts at Teb.
"In addition, the slowdown in consumer credit growth shows that domestic demand is moderating. Therefore, we believe that today's data is unlikely to affect the dovish stance of the central bank," they added.
Outstanding Turkish bank loans have grown 22.4 percent so far in 2011, data up to Sept. 16 showed, accelerating from 21.8 percent as of the previous week, yet below the central bank's target of 25 percent growth for the year, according to the weekly data released by banking regulator BDDK.
The main Istanbul share index closed 0.85 percent up at 56,801.20 points, outperforming the emerging markets index which was down 1.55 percent. Shares closed down 4.68 percent on Friday.
"Markets expect the ECB to implement a new measure after the latest developments," said Cem Tozge, a fund manager at Ata Portfolio.
European stock markets surged on Monday on the idea that the bank could slash its 1.5 percent main rate by a half-point on Oct. 6, reversing rises it made earlier this year in a bid to dig the European economy out of a deepening crisis.
There are substantial barriers to such a move, however, not least that the meeting would conclude ECB President Jean-Claude Trichet's term of office with a dramatic U-turn, and Yves Mersch of Luxembourg warned on Monday of "wild expectations".
Copyright Reuters, 2011
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