ISTANBUL: Turkey's lira eased on Tuesday as local firms took advantage of its recent strength to buy dollars to settle import bills, while bond yields held firm as investors waited for two treasury tap auctions including one of the current two-year benchmark.
Shares traded flat, holding steady at their strongest levels in 18 months.
By 0753 GMT, the lira traded at 1.7788 against the dollar , slightly weaker than 1.7755 late on Monday. Against its euro-dollar basket, the currency stood at 1.9944, from 1.9904.
A lower inflation outlook following the release of July inflation data last Friday and a narrowing current account deficit has boosted appetite for Turkish assets, and the lira hit its strongest level in three months against the greenback at 1.7735 on Monday.
"We see some balancing in the lira through local companies' dollar buying. I think the auctions can affect the lira positively as the main trend remains positive. There is nothing to ruin it," said Fatih Keresteci, strategist at HSBC.
The Turkish treasury will hold a tap of the current two-year benchmark bond maturing on March 5, 2014 and a nine-year fixed-coupon bond maturing on Jan. 12, 2022.
The two-year yield stood at 7.55 percent ahead of the auctions, virtually unchanged from its Monday close of 7.53 percent.
Analysts at Halk Invest wrote in a note that the auctions should attract strong interest.
"A yield of 7.55 percent is an important technical level. The auctions will determine if the yield will permanently decline below this level," they said.
The benchmark bond yield has fallen around 45 basis points in two weeks on the more favourable inflation outlook and a lower central bank lira funding rate.
Analysts said the central bank's average lira funding rate stood at 6.8 percent on Monday, far below the 10.8 percent level seen in late May, when the central bank applied additional liquidity tightening to control price pressures. A low funding rate means lower funding costs for banks.
The treasury on Monday borrowed a total of 7.6 billion lira ($4.28 billion), 5.6 billion lira of which was borrowed from the markets and 1.97 billion from public institutions through two tap sales.
It plans to borrow 16 billion lira ($9 billion) from the domestic markets in August compared with redemptions of 17.7 billion lira.
Istanbul's main share index was 0.26 percent up at 65,736 points, outperforming a 0.15 percent rise in the MSCI emerging markets index
"After touching a year high of 66,140 on Monday, the ISE-100 Index faced profit-taking sales ... Although the positive bias continues, it seems that breathless buying has come to an end. Today the market may try to test 66,300 again (in) more volatile trading," wrote analysts at Ata Invest.
Some $822 million dollars worth of new funds have poured into the Istanbul stock exchange since late June, as falling inflation, resilient growth and falling funding costs for banks lured investors.
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