The Istanbul stock index rose 2.0 percent to 59,978 points, easily outperforming a 1.0 percent rise in the MSCI emerging markets index.

"The decline in oil prices halted profit-taking which had been attributed to concerns about inflation and the current account deficit. It also eased concerns of a future tightening by the central bank, which boosted banking shares," said Mehmet Baki Atilal, research manager at Turkish Investment.

The rally was led by banking shares, which account for a third of the main Istanbul index.

Turkey's two-year benchmark bond closed at 9.23 percent, down from a previous close at 9.34 percent, as the dip in oil prices calmed inflation fears.

Analysts said easy liquidity conditions supported the bond market as it means banks have more funds available to buy bonds.

The central bank's monthly policy meeting summary, published on Tuesday, also reinforced expectations that monetary policy could be relaxed further after last week's cut in the overnight lending rate, as the bank appeared confident that core inflation had begun to fall in February.

By 1543 GMT, the lira stood at 1.7585 against the dollar, stronger than 1.7691 in late trade on Monday, and from the 10-day low of 1.7755 touched during Monday's intra-day trade.

"The dip in oil prices helped the lira and bonds recover," said Erkin Isik, a strategist at TEB. Isik said lira traders will be watching the outcome of the European Central Bank's longer term refinancing operation on Wednesday.

The latest Reuters poll showed that traders expect the ECB to allot 500 billion euros to banks in the operation.

Turkey's economy grew around 8.3-8.5 percent in 2011, according to Economy Minister Zafer Caglayan.