ISTANBUL: The Turkish lira weakened on Tuesday on easier lira liquidity and local companies buying dollars to pay for imports while bond and share prices declined despite successful debt auctions as investors took profits.
By 1539 GMT, the lira traded at 1.7678 versus the dollar, weaker than 1.7621 in late trade on Monday. The lira had hit a five-month high of 1.7401 last Wednesday.
Against a euro-dollar basket, the lira stood at 2.0460, a touch weaker than 2.0440 in late trade the previous day.
"The lira's weakening was mainly due to easier liquidity conditions coupled with profit taking," said a bank forex trader.
Turkey's Central Bank has been easing lira liquidity and the cost of funding since Jan. 10 by holding regular one-week repo auctions at a low rate.
"The lira has been appreciating since the start of 2012. So today, investors wanted to pocket some of their gains. Local companies also bought dollars to pay their import bills," the trader added.
The lira has gained around 7 percent versus the dollar since it hit its weakest ever level of 1.9215 in late December.
"As long as dollar/lira holds above 1.75 there is scope for a further squeeze that may bring 1.813 into focus next," wrote Piotr Matys, analyst at 4Cast Limited.
"Pullback below 1.75 will shift focus back to the downside and should lead to another attempt to test or break the October 2011 low at 1.738, followed by the September 2011 low at 1.7081," Matys added.
Turkey's two-year benchmark bond yield maturing on Dec. 4, 2013 closed at 9.28 percent, slightly up from a previous close at 9.22 percent.
"The main reason for the rise in bond yields is the deterioration of global risk sentiment. We saw some primary dealers selling bonds in tandem with the risk aversion," said Fatih Keresteci, strategist at HSBC.
Turkey's benchmark yield declined as far as 9.18 percent, after three successful debt auctions earlier in the day, as easier liquidity boosted demand, analysts said.
In total the treasury borrowed 8.07 billion lira ($4.57 billion) on Tuesday at lower-than-expected yields, of which 6.12 billion was borrowed from markets, including non-competitive bid sales, and 1.95 billion lira was borrowed from public institutions.
An earlier Reuters survey of eight banks had shown expectations centred on the treasury borrowing 5.67 billion from markets.
On Monday, the treasury borrowed a combined 4.4 billion lira via two debt auctions.
The main Istanbul share index closed 1.48 percent down at 59,662 points, underperforming the MSCI emerging markets index which was 0.47 percent down.
"This is a technical correction. There isn't any negative local news. After major companies announced their financial results, investors sold for profit taking," said Yunus Kaya, fund manager at Gedik Investment.
Shares of Turkish telecommunications company Turk Telekom closed 0.26 percent down at 7.80 liras after it said its net profit in 2011 fell by 16 percent to 2.07 billion lira ($1.17 billion) from a year earlier.
Turkish state-run lender Vakifbank's shares also closed 1.9 percent down at 3.09 liras as its net profit fell by a third from a year earlier to 261.7 million lira ($148 million) in the fourth quarter.
Major Turkish lender Isbank said after the market closed that its 2011 net profit stood at 2.67 billion lira, higher than a Reuters forecast of 2.34 billion lira.
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