Turkish markets rise on improved political outlook

ISTANBUL, July 29 (Reuters) - Turkish equities jumped on Tuesday for the second day in a row as investors bet that a top court would not close the ruling AK Party on charges of seeking to introduce Islamic law in Turkey.

The bounce was in contrast to emerging equities elsewhere, which hit their lowest since August 2007 on the back of ongoing problems in the Western financial sector.

Istanbul's main stock index .XU100 gained 2.71 percent on Tuesday rising to 39,153.74 points.

Turkish stocks were in negative terrain during the exchange’s first trading session before the release of a JP Morgan report upgrading Turkish stocks to overweight in their ideal portfolio and that the chance for a market-positive outcome to the Constitutional Court closure case was 80 percent.

“We were trading lower until right before 12 o’clock, when we got a JP Morgan report in which they upgraded Turkish equities to overweight, because they are cheap and trading at low price to earnings ratios,” said Muhittin Kuley, head of research at Orion Invest in Istanbul.

Turkish stocks have gained 18 percent since the beginning of the month on renewed optimism about the governing party staying open, but they are still some 30 percent lower than at the start of the year.

Tuesday's biggest gainers included conglomerate Sabanci Holding SAHOL.IS, which saw its shares rise 7.79 percent to 5.26 lira. Partly-state owned Vakif Bank VAKBN.IS gained 8.84 percent to 1.97 lira, getting a boost from government comments on Monday that Vakif Bank would be privatised before 2010.

Bank Akbank AKBNK.IS rose 3.48 percent to 5.95 lira.

Conglomerate Dogan Yayin DYHOL.IS was up 9.71 percent at 1.92 lira. Traders said it was mainly due to the stock looking cheap at current levels.


Turkey's lira .IYIX= firmed to 1.1960 against the dollar on the interbank market in after-hour trade after closing at 1.2030 on Tuesday. On Monday the lira closed at 1.2040.

The yield on the April 14, 2010 benchmark bond <0#TRTSYSUM=IS> fell to 19.95 percent from Monday’s close of 20.14 percent.

“We expect political uncertainty in Turkey to decrease, following the ruling by the Constitutional Court expected this week. Our Istanbul-based economics team puts a probability of a market-friendly ruling at 80 percent,” the JP Morgan report said.

Turkey’s Constitutional Court on Tuesday went into its second day of deliberations on whether to shut down the ruling AK Party on charges of seeking to introduce Islamic rule in Turkey. The party denies the charges.

Political analysts remain more cautious, with many expecting the party to be closed down.

Investors fear closure of the AK Party would plunge Turkey into political turmoil, hurt the current government’s reform drive as well as European Union membership chances. (Editing by Victoria Main)