* Bonds bolstered by strong auction demand
* Equities, lira broadly flat
* Government expected to revise growth forecast down
By Dasha Afanasieva
ISTANBUL, Oct 8 (Reuters) - Turkish bond yields fell on Tuesday amid strong demand for a series of government debt auctions while stocks were broadly flat, awaiting a resolution of the U.S. debt deadlock.
The 10-year benchmark yield fell to 8.84 percent from 8.94 percent at Monday’s close, while the two-year yield fell below 8 percent from 8.28 percent.
The Treasury is due to issue a new two-year benchmark bond maturing on Oct. 7, 2015 later on Tuesday, as well as a 10-year fixed-coupon bond maturing in September 2023. It will also tap its floating-rate note maturing in 2020.
Two government debt auctions on Monday also drew strong demand.
A standoff continued on Tuesday in the United States Congress that has shut down the federal government and could push the world’s biggest economy to the edge of defaulting on its sovereign debt.
While some argued the impasse caused investors to move out of riskier assets, others said it boosted Turkish and other emerging markets because it made an imminent reduction in the Federal Reserve’s bond buying programme less likely.
“Foreign investors may be willing to tap the new auction bonds with a short trading strategy, taking advantage of the lower inflation figure for October and the resulting capital gains,” said Erkan Dernek, market strategist at Odeabank.
The improved sentiment in Turkish bond markets was not enough to lift stocks.
Istanbul’s main share index was down 0.16 percent at 75,788.49 points, underperforming emerging market peers which were up 0.38 percent.
The government is due to announce its latest economic outlook for the next three years later, and is expected to revise down its growth target for next year to 4 percent from 5 percent due to risk factors tied to capital outflows.
Data earlier showed industrial production fell in August from a year ago, its first such decline since December and defying expectations of a rise.
The lira weakened slightly to 1.9933 against the U.S. currency by 0828 GMT, from 1.9905 late on Monday.
Editing by Catherine Evans