UPDATE 1-Turkish bonds buoyed head of c.bank meeting

* Rate corridor may be trimmed at Thursday meeting
* Bond yields fall, shares flat
* Lira revives after post-Bernanke losses

(Adds closing prices)
ISTANBUL, July 18 (Reuters) - The Turkish lira recovered
from overnight losses on Wednesday and bond yields fell, with
investors positioning for a possible cut in secondary interest
rates by the central bank.
Economists believe the bank may narrow the interest rate
corridor -- the difference between its 5 percent overnight
borrowing rate and its 11.5 percent lending rate -- when it
meets on Thursday.
That expectation kept bond yields under pressure, with the
yield on Turkey's benchmark bond due March 5, 2014
falling to 7.83 percent from 7.89 percent a
day earlier.
"Bond yields resumed declining as foreign demand continues.
A more dovish stance by the Central Bank, even if it decides not
to cut rates, may push yields as low as 7.70 percent," Garanti
Yatirim strategist Tufan Comert said.
"We think that a reserve requirement adjustment is certain
(on Thursday). Among the easing options we find a 50 basis
points cut at the upper end of the interest rate corridor more
likely," said Ozgur Altug, chief economist at BGC Partners.
Trade in the lira was also influenced by Federal Reserve
Chairman Ben Bernanke's overnight testimony to Congress, which
offered few clues on whether the U.S. central bank was moving
closer to a fresh round of monetary stimulus.
The currency, which had weakened after Bernanke's comments,
strengthened to 1.8030 by 1500 GMT from 1.8126 on Tuesday.
Against its euro-dollar basket the lira
firmed to 2.0065 from 2.0127 a day earlier.
"Global factors are weighing more dominantly on lira
sentiment. It seems the lira is balanced between optimism in
global markets and rate cut expectations in Turkey," Altug of
BGC Partners said. "I expect lira to move around 2.00 against
the euro/dollar basket, and 1.7950-1.80 against the dollar in
the short term."
Expectations of monetary policy easing were fuelled earlier
this month by central bank Governor Erdem Basci, who said the
bank may cut its year-end 6.5 percent inflation forecast in
July.
"If the (central bank) ... does not cut tomorrow, it might
create a greater opportunity to buy Turkish government bonds
after the short "disappointment sell-off" ... as the decision
... would mean a very strong commitment to the fight against
inflation," Altug added.
The bank is not expected to cut its main policy rate, the
one-week repo rate, from its record low of 5.75 percent.
It injected 1.5 billion lira ($831 million) into the market
in a one-week repo auction on Tuesday, after injecting a
combined 5.5 billion lira injection on Monday and Tuesday.
Istanbul's main share index closed 0.04 percent
lower at 62,444.93 points, outperforming a 0.24 percent decline
in the MSCI emerging markets index.
($1 = 1.8054 Turkish liras)

(Writing by Ece Toksabay; Editing by John Stonestreet/Catherine
Evans)