* Shares inch up, banking shares, airport operator TAV gain
* Lira eases after Tuesday's rate cut
* Bond yields lower
By Seda Sezer
ISTANBUL, Jan 23 Turkish shares hit record highs on Wednesday, with the banking index leading gains on market expectations of strong fourth-quarter results in the sector.
By 1540 GMT the main Istanbul share index rose 0.81 percent to 86,340.97 points, with the banking index up 0.97 percent.
Isbank shares rose 2.49 percent to 7.40 lira. Garanti was up 0.2 percent at 9.98 lira.
Airport operator TAV rose 1.37 percent to 11.10 lira after saying late on Tuesday that authorities would compensate it for any losses if a planned third airport opened in Istanbul while it is still running Ataturk, the country's largest.
The yield on the two-year benchmark bond stood at 5.84 percent, down from 5.90 percent on Tuesday.
By 1543 GMT, the lira was at 1.7717 against the dollar compared with 1.7706 late on Tuesday, easing for a second day after the central bank cut some interest rates to keep the strong local currency in check and to curb loan growth.
The bank cut its overnight borrowing rate to 4.75 percent from 5 percent and its lending rate to 8.75 percent from 9 percent on Tuesday. It held its one-week repo policy rate at 5.50 percent.
"With its decision the central bank defended against an appreciating lira," HSBC strategist Fatih Keresteci said in a research note, adding there was now less of a chance of the lira strengthening to below 1.75 to the dollar.
The lira hit 1.7513, its strongest in ten months last week, fuelled by expectations of a second credit rating upgrade for Turkey.
Turkey is hoping another major ratings agency will lift it to investment grade after Fitch did so last November. A second upgrade would enable Turkey to join benchmark investment grade bond indexes, a status that many funds require before investing. (Editing by Nick Tattersall, John Stonestreet)