RPT-Turkish assets to rally after strong "yes" to reform

* 58 pct back charter change in boon to government

* Assets had priced in "yes" win by moderate margin

* Benchmark bond yield seen falling below 8 pct

* Lira could push to 1.50 to dollar, equities hit new high

By Alexandra Hudson

ISTANBUL, Sept 12 (Reuters) - Turkish assets looked set to rally on Monday after Turks backed government reforms in a referendum on Sunday by a much larger margin than expected, signalling strong support for Prime Minister Tayyip Erdogan.

A "yes" vote of 58 percent suggested that Erdogan's AK Party would likely win a third-term in parliamentary elections next year with a clear majority, analysts said, an outcome they view as most supportive to continued reform and growth in Turkey. [ID:nLDE68B01J] [ID:nIST007191]

Prior to the referendum, assets had priced-in a moderate government win with a "yes" vote of up to 55 percent.

The extent of the approval rate will ease fears among some in the market that Turkey's government, in power since 2002, might have been tempted to raise spending next year if it had needed to raise flagging support.

"A "yes" vote was already priced in, but market players will love anything above 55 percent. We will definitely open positive on Monday, with shares rising 1.5-2 percent at the open, and if other markets are doing well, we could reach new highs," said Emre Balkeser, head of institutional sales at Garanti Securities.

"There is not much room for bond yields <0#TRTSYSUM=IS> to fall further. With a strong "yes", the lira could reach 1.47 or 1.48 to the dollar," he added.

The central bank interest rates are at record lows and annual inflation levels are near the market yields, making bond yields to drop further.

Turkey's lira IYIX= closed unchanged at 1.5130 to the dollar on the interbank market on Wednesday, prior to a two and a half day public holiday to mark the end of Ramadan.

Equities .XU100, which last week set an all-time record high, eased 0.23 percent to 60,608.08 points in last trade.

Turkey's growth prospects have seen Turkish stocks massively outperform other markets, driving gains of 15 percent since the start of the year, compared with a flat benchmark emerging equities index .MSCIEF.

"The forecast was for a 'yes' vote of between 50-55 percent, but the result seems to be a more comfortable win. The most important outcome for markets is that it makes the possibility of a single AK party government in the coming election stronger," said economist Ozgur Altug.

"The blue chip index may test the 61,000 level whereas the exchange rate to the dollar will gain to about 1.50."

The yield on the benchmark April 25, 2012 bond <0#TRTSYSUM=IS>, which closed at 8.10 percent on Wednesday, was seen strengthening to 8.0 percent or possibly even below.

"This (yes vote) is much higher than expectations and what we saw in the opinion polls. It will certainly fuel a positive response in markets on Monday, and we could see the benchmark yield on the secondary bond market fall to below 8 percent," said economist Ozlem Bayraktar at Unicorn Capital.

Some analysts cautioned that a market rally might be a little short-lived with a risk of profit taking or weak economic sentiment elsewhere limiting the upside.

However, key economic data next week could give a further boost to sentiment towards Turkey. Second-quarter gross domestic product figures are due on Tuesday, with the economy seen growing 9.0 percent on the year according to the consensus forecast in a Reuters poll. [ID:nLDE6870NK] (Additional reporting by Ebru Tuncay, Ayla Jean Yackley; Writing by Alexandra Hudson; Editing by Marguerita Choy)