INSTANT VIEW: Turkish court rules not to close AK Party

ANKARA (Reuters) - Turkey's top court on Wednesday ruled against closing the governing AK Party for Islamist activities but decided to impose partial financial penalties on the party, chief judge Hasim Kilic said.

The verdict was set to ease months of political uncertainty, which has battered Turkey's financial markets on fears that the democratically elected party would be closed down.

Here is some reaction:

* LUIS COSTA, COMMERZBANK EMERGING MARKET DEBT STRATEGIST

"This was an extremely positive outcome. The markets will overshoot on this news. The consensus was for the constitutional court to be a lot stricter but the popularity of the AK Party obviously weighed a lot on the final decision. The party will probably gain popularity after this ruling."

WOLFANGO PICCOLI, ANALYST, EURASIA GROUP

"It is certainly a strong warning. The AK Party was not just cut off from funding but also the actual voting of 6 to 5 is a signal. Has it let the AK Party off the hook? That depends on whether they have learned a lesson from what has happened and whether they will be able to show that they are committed to secularism.

"What they say and do in the next few weeks will be crucial, including a possible cabinet reshuffle. We should not put much hope of the reformist spirit we saw in the first term. We will probably see the AK Party becoming more of an establishment party. This ruling is good for the EU but we should not expect much reform in the short- to medium-term.

"The AK Party's popular support could get a boost from the ruling but there will be many people who will be skeptical so it will be crucial how they act going forward."

* SLIM FERIANI, MANAGING DIRECTOR OF PROGRESSIVE DEVELOPING

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"Last week, Turkish stocks were the cheapest in emerging markets, trading at a PE (price-to-earnings ratio) of 6.6 times versus an average emerging market ratio of 10 times. Investors had to step back at some point to realize that life goes on and companies still operate despite the politics. Ultimately there are a lot of vested interests, certainly from the business community, that do not want to see Turkey throw away the years of progress and reform."

DEBBIE ORGILL, ECONOMIST, ABN AMRO

"I think the political tension in Turkey will go through a quiet period, but you can never rule this out completely. These things have a way of rearing their heads again, but (political tensions) look alright for now."

TOLGA EDIZ, ECONOMIST, LEHMAN BROTHERS

"This is the best possible outcome for the markets in my view. The AKP has basically been found guilty but its punishment will not be closure. It will be punished financially. Markets will respond to this positively and its in line with our view."

JOOST LAGENDIJK, EUROPEAN PARLIAMENT MEMBER

"I feel very relieved that Turkey's Constitutional Court decided not to close the AKP. Closing down AKP on the basis of this indictment clearly goes against European rules on closing down political parties and would have been an anti-democratic decision. Hopefully the AKP will draw the right conclusions from the court ruling and will take action now."

KOKSAL TOPTAN, TURKISH PARLIAMENT SPEAKER

"The threshold of Turkish democracy has been set yet higher with this decision of our high court."

* MUSTAFA OZYUREK, MAIN OPPOSITION CHP MEMBER

"We should respect the court's decision. The majority of the court decided that AKP became the hub of anti-secular activities. I hope AKP starts acting in line with the principles of secularism after this verdict."

MUMTAZ SOYSAL, FORMER TURKISH FOREIGN MINISTER

"The verdict not to close came as six against five. The party was not closed in reality but it is like it was closed. It got a serious warning. From now on they cannot continue with the same excitement in the same line because a new closure case would come and this time they would be closed."

MARKET REACTION

The lira was last quoted at 1.1765 in Thursday-dated interbank trade before the verdict was released, strengthening sharply from a close on Tuesday of 1.2030 on anticipation that the court would rule not to close the party

The Istanbul share market was also closed when the verdict was announced. The main index ended the day 5.6 percent higher on speculation the AK Party would not be closed. Bond trading was also closed. The yield on the April 14, 2010 benchmark bond had ended at 19.74 percent, down from 19.95 percent on Tuesday.

BACKGROUND

- The Court of Appeals chief prosecutor filed a petition on March 14, seeking the AK Party's closure on charges of trying to undermine secularism and turn Turkey into an Islamic state.

- The indictment also called for 71 leading political figures, including Prime Minister Tayyip Erdogan and President Gul to be banned from belonging to a party for five years. Gul stopped being an AK Party member when he became president.

- The court rapporteur recommended in his non-binding report on July 16 that the party not be closed. The court had in previous rulings ignored his advice.

- The prosecutor accused the AK Party, which came to power in November 2002, of maintaining ties with previously banned Islamist parties from the 1990s.

- A decision to close the party required the approval of at least seven of the court's 11 judges, eight of which were appointed by former President Ahmet Necdet Sezer, a secularist critic of the AK Party.