Moderate reaction from Turkish assets to Iraq offensive

ISTANBUL (Reuters) - Turkish markets weakened on Friday after the army launched a land offensive into northern Iraq but investors said while military action weighed on sentiment they were more focused on global developments.

Turkey's military said it had launched a cross-border land offensive backed by fighter jets into northern Iraq late on Thursday to hunt down Kurdish PKK guerrillas based there.

At 1230 GMT, the lira dipped to 1.2050 against the dollar, compared to a previous close of 1.2040, and 1.2030 before the army's announcement.

The main stock market index fell 1.9 percent to 45,578 points, extending its losses for this year to 18 percent.

"Turkish-related issues are secondary, the whole story is about global markets," said Emre Tezmen, managing director of Tera Stockbrokers in Istanbul.

But investors said the operation did weigh on sentiment and Turkish stocks underperformed emerging market stocks overall, which fell 0.5 percent.

Analysts had been concerned that any land operation would hurt crucial ties with the United States, and so took heart from a U.S. statement saying Washington was aware of the incursion, which it understood to be of limited duration.

"Even though the news this morning on land operations into northern Iraq is not good news from a market perspective it is not a major surprise. It is probably contributing a bit to the negative sentiment in Turkish markets today, but the negative global sentiment continue to be the most important factor," said Lars Christensen, economist at Danske Bank.

Asian and European stocks fell on Friday, pulling Turkish assets with them.

Turkish stocks bucking the negative trend included Yapi Kredi Sigorta, which rose 1.7 percent to 11.80 lira after its owner, Yapi Kredi Bank, said it was looking to sell its insurance business or find a partner.

The shares soared as much as 7 percent after the news but then eased back as analysts said a sale had been anticipated and the stock has recently outperformed. It had risen 17 percent this year to Thursday's close, compared to a 16 percent fall on the main index.

(Reporting by Emma Ross-Thomas, editing by Mike Peacock)