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Turkish short-term yields fell, lira eases on rate cut prospects
* Short-term yields down
* Lira at weakest in a week
* Expectations of rate cut rise
By Seltem Iyigun
ISTANBUL, Feb 6 (Reuters) - Turkey's short-term bond yields fell and the lira hit its weakest in a week on Wednesday after a rise in the real lira exchange rate heightened expectations of an interest rate cut.
Istanbul's main share index closed down 0.32 percent at 80,054 points, broadly in line with a 0.47 percent in the global emerging markets index.
The central bank said on Tuesday the lira's real effective exchange rate, which factors in inflation to give an indication of the currency's underlying strength - rose to 120.16 in January from a revised 118.08 in December.
The central bank said in November it would make "measured" interest rate cuts if the real exchange rate reached 120-125, as it seeks to prevent the current account deficit from widening.
The yield on Turkey's two-year benchmark bond closed at 5.73 percent from Tuesday's close of 5.78 percent. It has fallen around 10 basis points this week.
"The current monetary policy stance is oriented to avoid excessive capital inflows to Turkey," said Ali Cakiroglu, senior investment strategist at HSBC Asset Management in Turkey.
"Markets expect (the central bank) to cut its overnight borrowing rate by 25 basis points at its next meeting."
The central bank's monetary policy committee is due to meet on Feb. 19. At its January meeting, the bank reduced its overnight borrowing rate to 4.75 percent from 5 percent and its lending rate to 8.75 percent from 9 percent.
Yields on bonds with a maturity longer than two years rose due to inflation worries after higher-than-expected January inflation data and the recent rise in global oil prices. Turkey imports most of its energy needs.
The yield on the bond maturing on Sept. 14, 2022 closed at 6.93 percent on Wednesday, up from last week's close at 6.74 percent.
By 1553 GMT, the lira eased slightly to 1.7646 to the dollar , after earlier hitting its weakest for a week at 1.7668, from 1.7626 late on Tuesday. Against its euro-dollar basket it weakened to 2.0764 from 2.0736. (Writing by Seltem Iyigun; Editing by Nick Tattersall, Ron Askew)
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