UPDATE 1-Turkish lira firms; investors await rate decision

Mon Jul 22, 2013 11:29am EDT

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(Updates with closing prices, adds comment)

By Seda Sezer

ISTANBUL, July 22 (Reuters) - The Turkish lira gained on Monday, lifted by expectations the central bank will raise interest rates at its policy meeting, which investors hope will send a clear signal of the bank's determination to defend the currency.

The lira slid to its weakest-ever against the dollar two weeks ago over concerns about U.S. Federal Reserve policy and civil unrest in Turkey, forcing the central bank to sell billions of dollars through auctions to stem the fall.

The lira was at 1.9122 to the dollar by 1441 GMT, from 1.9211 late on Friday.

The policy meeting in Ankara on Tuesday could yield a rate hike large enough to calm market nerves. Reassurances from Fed Chairman Ben Bernanke last week over the pace of U.S. plans to ease monetary stimulus have already boosted sentiment and taken pressure off Turkey's central bank.

Policymakers are caught in the middle as Prime Minister Tayyip Erdogan openly advocates against raising interest rates, bent on maintaining strong growth as elections approach next year, while analysts say forex reserves alone will not be enough to shore up the lira.

Central Bank Governor Erdem Basci said last week a "measured step" to widen the interest rate corridor it uses to control liquidity conditions would be on the agenda at the meeting.

All 17 economists in a Reuters poll expect the bank to raise its overnight lending rate, while keeping its policy rate and overnight borrowing rates on hold.

The main Istanbul share index edged 0.08 percent lower to close at 75,816.02 points, while the 10-year bond yield fell to 8.76 percent from 8.82 percent. (Writing by Humeyra Pamuk; Editing by Ayla Jean Yackley and Robin Pomeroy)

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