UPDATE 2-Turkish watchdog probes forex deals after central bank auctions

Wed Jul 10, 2013 7:00am EDT

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(Adds watchdog confirmation, banker quote)

By Nevzat Devranoglu and Ozge Ozbilgin

ISTANBUL/ANKARA, July 10 (Reuters) - Turkey's banking watchdog said on Wednesday it was probing foreign exchange deals by lenders, after sources said it was looking into possible market manipulation following central bank auctions of $2.25 billion in dollars.

The watchdog BDDK was seeking details of transactions on July 8-9, senior banking sources told Reuters. They said the BDDK wrote to banks on Tuesday asking for details of auction bids and for what purpose they had bought foreign currency.

The regulator told Reuters in a statement that this was routine practice.

"They sought all information on when forex was bought, at what level and by whom on all transactions of more than $2 million," said one bank executive familiar with the matter.

The lira hit a record low of 1.9737 against the dollar on Monday. It has rebounded after the central bank sold a record $2.25 billion of hard currency, trading at 1.9430 on Wednesday.

The bank has now sold $4.9 billion this year to defend the lira, reducing its net foreign reserves to around $41 billion, according to bankers' calculations.

"The probe is aimed at scaring people for next time, but nothing will come out of this," said one London-based banker who did not want to be identified.

Last month, Turkey's Capital Markets Board launched an investigation into financial orders at brokerages, with a focus on foreign stock transactions, in what sources close to the matter described as an unprecedentedly broad investigation. The results of that probe have not been announced yet.

"The aim is to see whether banks' forex transactions were in line with (regular) banking activities and their needs or whether they were manipulative," a state economy official said of the BDDK probe.

A lira sell-off began in early May after the U.S. Federal Reserve began to signal it may scale back its stimulus measures.

Weeks of Turkish demonstrations against the perceived authoritarianism of Prime Minister Tayyip Erdogan's government also weighed on the lira. Erdogan has accused speculators and what he called an "interest-rate lobby" of fomenting the unrest to undermine Turkey's growing affluence. (Writing by Daren Butler and Seda Sezer; Editing by Hugh Lawson)

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