ISTANBUL: The Turkish lira gained against the dollar on Monday due to central bank action supporting the currency despite rising global risk aversion after Standard & Poor's mass downgrade of euro zone countries.
Bond yields declined ahead of two debt auctions, help by the strengthening currency and robust foreign investor flows.
Rating agency S&P on Friday cut nine of the euro zone's 17 countries, including top-notch France and Austria, and said it would decide shortly whether to downgrade the euro zone's bailout fund.
By 0858 GMT, the lira traded at 1.8550 versus the dollar, compared 1.8621 in late trade on Friday when it was hit by speculation about downgrades.
The lira hit 1.8399 per dollar at one point last Thursday, its strongest in a month on foreign inflows seeking attractive bond yields.
"The main reason the lira is stronger despite the downgrade news is the central bank's actions," said an investment consultant at one portfolio company.
"The bank's liquidity tightening and commitment to support the lira seems to have convinced investors. The lira could continue to appreciate if it stands below the 1.8350 level against the dollar," the consultant said.
Under a new policy, the central bank has been holding intraday repo auctions instead of fixed-rate ones to tighten lira liquidity and intervening directly in the forex market to support the lira on "exceptional days".
The central bank Governor Erdem Basci also said this month the bank will use necessary instruments to ensure lira appreciation in 2012 and there was no reason for further lira weakening.
Against a dollar/euro currency basket, the lira traded at 2.1032, stronger than 2.1087 in late trade on Friday.
The yield on Turkey's benchmark bond maturing on Dec. 4, 2013 stood at 10.73 percent, down from a previous close of 11.05 percent.
"The Turkish Treasury has debt auctions this week. But next week's auctions will be more important. The liquidity actions of the central bank will also be monitored," said a fixed-income trader at one bank.
On Jan. 17, Treasury will hold a zero coupon bond auction maturing on March 20, 2013 and a floating coupon bond maturing on Jan. 24, 2018.
Next week it will hold four debt auctions including a tap of the current benchmark bond.
The main Istanbul share index was up 0.97 percent at 52,062 points, outperforming the MSCI emerging markets index, which was down 0.54 percent.
Turkish markets shrugged off data showing consumer confidence rose in December but still remained below the 100-point level that signals pessimism. October's unemployment rate also rose to 9.1 percent from 8.8 percent in September.
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