AK Party case, bombings give Turkish markets jitters

By Humeyra Pamuk and Thomas Grove

ISTANBUL (Reuters) - Turkish markets were narrowly mixed on Monday, held back by jitters over court deliberations on whether to close the ruling AK Party and after bombings in Istanbul overnight which killed 17 people.

The main Istanbul stock index ended the morning 0.60 percent higher at 37,781.68 points after a suspension due to a technical fault delayed the close by 30 minutes. The index fell 3.56 percent on Friday to 37,556.95 points.

The lira weakened to 1.2040 against the dollar in interbank trade, after closing at 1.2035 on Friday.

The Constitutional Court began deliberating on Monday morning on whether to shut down the AK Party on charges of seeking to introduce Islamic rule in Turkey. Analysts expect a verdict by early August.

Investors fear closure of the AK Party would hurt the economic reform drive of Prime Minister Tayyip Erdogan, which has brought in large amounts of foreign direct investment.

"The majority of those who wanted to avoid Turkey risk took their positions on Friday, and the wait-and-see approach is dominant among those who are in the market now," said analyst Burak Urucu at Meksa Invest in Istanbul.

Political tensions were heightened hours before the case as two bombs killed 17 people and wounded 150 in an Istanbul street of cafes and tea shops -- the deadliest attacks in Istanbul since 2003.

No one has claimed responsibility for the blasts, though newspaper reports blamed the carnage on the Kurdistan Workers Party, which regularly carries out attacks within Turkey, but rarely targets civilians.

"No doubt this will aggravate domestic tension and add to uncertainty," economist Ahmet Akarli at Goldman Sachs said in a research note. "However, the Turkish banking system has had experience with similar attacks in the past ... and is technically well-equipped to cope with such difficult situations."

INCREASED TENSIONS

Traders also said the market was reluctant to make big bets ahead of the court verdict and heightened political tensions. "The bombings yesterday increased tensions slightly," a forex trader said. "The market is not very eager to go down. The dollar could remain around the 1.1950-1.2080 range," he said.

The yield on the April 14, 2010 benchmark bond fell to 20.17 percent from Thursday's close of 20.37 percent.

Russian oil major LUKOIL agreed on Monday to buy Turkish fuel distributor Akpet for more than $500 million, gaining access to about 5 percent of Turkey's oil product retail market.

LUKOIL acquired earlier this year a motor oil production and packaging plant with capacity to produce 12,000 tonnes per year.

A quarterly inflation report from the central bank also unveiled new inflation expectations from Central Bank Governor Durmus Yilmaz who said on Monday inflation was expected to be at 10.6 percent at end-2008, up from a previous 9.3 percent forecast and compared with an official 4 percent target.