* Lira firms from Thursday's record lows
* Weaker-than-expected U.S. jobs data lifts lira
* Local elections key for political risk, monetary policy
* 10-yr bond yield below 10 percent for first time in 2014
(Updates for closing figures, U.S. jobs)
By Dasha Afanasieva
ISTANBUL, Jan 10 Turkish assets recovered some
losses on Friday as weaker than expected U.S. jobs data reduced
fears of a deeper cut in U.S. stimulus, but remained under
pressure from a corruption scandal shaking the government.
U.S. employers hired the fewest number of workers in almost
three years in December, nonfarm payrolls showed on Friday,
surprising markets and helping lift the Turkish lira off
Thursday's record lows.
A deepening feud between Prime Minister Tayyip Erdogan's
government and the judiciary and police has weighed on markets
since the corruption investigation came to light last month.
The inquiry has led three ministers to resign and damaged
the ruling party ahead of elections this year as well as causing
the lira to repeatedly weaken to record lows.
Erdogan has cast the affair as a bid by U.S.-based Turkish
cleric Fethullah Gulen to smear his AK Party before a local
election in March and a presidential race five months later, in
which he is expected to stand.
In the first major poll since the scandal broke, the
popularity of the ruling AK Party slipped but it remains well
ahead of rivals.
"Against these myriad unknowns it is only reasonable to
incorporate a much higher political risk premium than we have
been accustomed to since 2002," said Inan Demir, chief economist
Morgan Stanley said in a note to clients on Thursday that it
saw significant downside risks to economic growth because of the
political uncertainty and said those risks were still not
reflected in Turkish asset prices.
The lira firmed to 2.1660 against the dollar by
1547 GMT from 2.1850 late on Thursday, when it touched an
all-time low of 2.1980 in early trade.
Markets had feared that strong U.S. jobs numbers would lead
to sharper cuts in the U.S. stimulus that has flooded emerging
markets including Turkey with cheap money.
Turkey is particularly vulnerable to cuts in the $85 billion
monthly asset buying, which is set to be reduced by $10 billion
this month, because of its large current account deficit.
Despite the pressure on the lira, Turkey's central bank has
so far refused to raise interest rates for fear of crimping
growth, attempting instead to support the lira through forex
auctions and tightening monetary conditions by cancelling repo
auctions that strategies analysts say have a limited shelf life.
The bank has said it plans to sell at least $6 billion at
forex auctions by the end of this month and has already sold
more than half that amount, depleting its forex reserves.
The real average cost of funding for banks, running at
around 7.12 percent, is meanwhile very close to the
maximum it can reach without a change in headline rates. The
central bank kept its main one-week repo rate at 4.50 percent,
its borrowing rate at 3.50 percent and its overnight lending
rate at 7.75 percent at its last meeting in December.
Stocks rose after two days of losses with the Istanbul index
closing up 2.26 percent at 67,912 points, outperforming
the main emerging market index, which rose 0.72
The yield on Turkey's 10-year benchmark bond
fell below 10 percent for the first time since the end of last
year, closing at 9.95 percent from 10.04 percent late on
(Editing by Nick Tattersall and Tom Heneghan)