ISTANBUL: The Turkish lira eased versus a broadly stronger dollar but held up better than its emerging peers on Monday, while bond yields nudged higher as the central bank kept up its policy of intermittent tightening in the money market.
Local share prices fell more than 1 percent in the wake of elections in Greece and France that have raised concerns about the euro zone's drive for austerity to tackle its debt crisis.
Turkey's central bank tightened its purse strings on Monday, holding a higher-charging intraday repo auction for the second session in a row instead of its usual auctions at which it charges borrowers a lower rate.
As of 0823 GMT, the lira traded at 1.7642 versus the dollar, weaker than 1.7581 late on Friday. Against a euro-dollar basket it traded at 2.0302, from 2.0329.
"After the last inflation data, the central bank has started to apply additional tightening to prevent a deterioration in expectations," said Ali Ihsan Camci, the manager of the treasury department of Halk Invest.
Turkish annual inflation jumped more than forecast in April and is likely to stay high this year, forcing the central bank to stick with a policy of tightening the amount of cash flowing through the economy.
"The euro fell versus the dollar after the election outcomes in France and Greece; this has weakened the lira versus the dollar too. But looking at the currency's strengthening versus the euro-dollar basket, we can say there are investors who are still buying the lira," Camci added.
"The levels of 1.7675-1.7850 for the dollar-lira exchange rate and 2.03-2.0165 for the lira versus the euro-dollar basket are important."
The central bank tightened lira liquidity to 33.4 billion lira on Friday from a previous 34 billion lira via an expensive intraday repo auction, which increased the average funding rate of banks to 9.76 percent from a previous 8.79 percent.
Two-year bond yields traded at 9.46 percent on Monday, edging up from a previous close at 9.44 percent.
"We see new inflows to the bonds in line with the central bank's additional tightening, which is limiting the rise of the yields. Normally, we would expect bonds to be weaker under current global risk aversion," said a fixed-income trader.
To fight inflation and a large current account deficit, the central bank has since late 2010 used a complex policy mix of daily liquidity injections, high reserve requirement ratios and adjustments in its overnight borrowing and lending rates or interest rate "corridor".
The main stock index dipped 1.28 percent to 58,261 points, outperforming a slide of 1.64 percent in the MSCI emerging markets index.
"The election blow will push equities lower... 57,500 (200-days moving average) may be in play later in the week if negative bias persists," wrote analysts at Ekspres Invest.
Shares in Fenerbahce, Turkey's richest football club, jumped 10.23 percent to 59.25 lira after the football disciplinary committee opted not to punish leading clubs over match-fixing allegations.
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