In early trade, the lira firmed to 1.7994 against the dollar, its strongest level in 12 days, supported by a recovery in the appetite for risk globally as Spain succeeded in holding onto an investment grade debt rating with agency Moody's.
By 0800 GMT the lira eased back to 1.8021 against the greenback, still stronger than 1.8063 late on Tuesday. Against the euro-dollar basket it eased to 2.0812 from 2.0803.
The yield on Turkey's two-year benchmark bond fell five basis points to 7.39 percent, adding a 10 basis point drop on Tuesday after a successful treasury debt auction.
"Hopes of a credit rating upgrade for Turkey and of the central bank cutting the upper end of the interest rate corridor tomorrow are also pushing yields down," said Serkan Ozcan, a vice president at Odea Bank.
"However, we expect the fall in the (benchmark) yield to halt at seven percent. It will continue to trade in a tight range in the short-term."
The central bank will hold its monthly policy meeting on Thursday. At its last meeting in September, it cut the overnight lending rate, the upper end of its interest rate corridor, by 150 basis points to 10 percent.
A Reuters poll conducted with nine analysts showed the bank is expected to cut its overnight lending rate by at least another 50 basis points on Thursday.
There remains concern about inflation, however, keeping the central bank's approach to monetary easing measured and limiting the fall in bond yields.
Turkey's annual consumer price inflation was above 9 percent in September, down from 11 percent in April but still far above the central bank's year-end target of 5 percent.
Turkey's main share index was up 0.31 percent at 70,502 points, after hitting its new highest level since November 2010 in early trade. The emerging markets index was up 0.46 percent.
"We expect... the index to settle within a 70,000-70,500 range in the early minutes of the session while further strength depends on the direction of global markets," wrote analysts at Is Investment.
"The third quarter earnings season takes off with Turk Telekom results today and Eregli tomorrow, therefore we may see stock specific movements during the day."
Shares in Turk Telekom were flat at 7.08 lira.