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Markets

Lira down as Central Bank holds off dollar sales

ISTANBUL: The Turkish lira fell 0.6 percent against the dollar on Thursday after the central bank failed to call an auct

turkish-liraISTANBUL: The Turkish lira fell 0.6 percent against the dollar on Thursday after the central bank failed to call an auction to sell dollars while Istanbul stocks also eased, with several sectors hit by tax increases.

Currency traders were disappointed by the central bank's decision to hold off from selling dollars -- while auction volumes have been falling, the only day the bank failed completely to hold an auction in recent weeks was when US markets were shut for a public holiday.

The sales of billions of dollars have helped lift the currency almost 5 percent off record lows hit last week.

By 0930 GMT the lira eased to 1.8325 per dollar from 1.8225 earlier. It closed on Wednesday at 1.8270 on the interbank market. Against a euro-dollar basket the lira slipped 0.6 percent to 2.1764.

"Today's decision of the central bank seems to be related to the recovery of the global risk appetite. Together with foreign inflows into the bond market, this might have pushed the central bank to hold off today," said Tufan Comert, a strategist at Garanti Securities in Istanbul.

Latest moves to relax banks' reserve ratios had also led to increased liquidity on local markets, Comert added.

While Turkish markets have benefited this week from improved investor confidence in the euro zone, the decision to not hold a dollar sale coincided with a slight downturn in global risk appetite. Weaker Chinese trade data also acted as a reminder of broader economic problems.

Turkish stocks were flat but Turkcell, the country's biggest cellphone network operator, fell after a shareholder meeting failed to vote on board changes and dividend distribution.

The stock, trade in which was briefly suspended, fell 1.5 percent, then pared losses to trade near flat by 0830 GMT. It surged more than 4 percent on Thursday.

Turkey also raised taxes on alcoholic drnks, tobacco, mobile phones, light commercial vehicles and passenger cars.

Vehicle maker Tofas, a joint venture between Koc Holding and Italy's Fiat was one of the companies whose shares took a hit following the move, falling 1.4 percent

"Today's tax increases may lead to underperformance of Turkey compared to peers," Tera Brokers said in a note to clients. "Tax hikes will likely curb demand on the mentioned products and increase 2011 year-end inflation."

MEDIUM-TERM PROGRAMME FAILS TO SURPRISE

Markets reacted calmly to the new medium-term economic programme in which the government projected 2011 growth at 7.5 percent and 4 percent for next year while predicting end-year inflation at 5.2 percent.

The programme also envisages the current account deficit easing to 8 percent next year from 9.4 percent in 2011, a more pessimistic expectation than many bank economists have.

"It hasn't moved the market because it's not very different from what people expected. They are being quite conservative on the current account deficit and that's probably because growth forecasts are more optimistic than private sector economists have," said Manik Narain, EM strategist at UBS in London.

"It's not an ambitious programme at all."

Benchmark government bonds firmed slightly, with yields easing 5 basis points to 8.28 percent.

On dollar bond markets, Turkey's share of the EMBI Global index was steady at 308 basis points over US Treasuries. Turkey's benchmark 2036 dollar bond rose almost one point in price to 109.3 cents on the dollar, the highest in over three weeks.

Copyright Reuters, 2011