* Lira recovery driven by oil price decline
* Bonds firm on easing inflation, tighter liquidity
* Shares rise
ISTANBUL, Feb 28 (Reuters) - The Turkish lira recovered against the dollar and bonds also got a boost on Tuesday as a dip in oil prices eased concerns about the country’s huge current account deficit and double-digit inflation.
Investors increased their buying of Turkish assets as Brent crude futures extended losses and slipped below $124 on Tuesday.
By 0900 GMT, the lira stood at 1.7580 against the dollar, stronger than 1.7691 in late trade on Monday.
“The lira’s weakness has been halted by the decline in oil prices and yesterday’s dollar selling by local companies. They could continue to sell today as they usually do at the end of each month,” said a forex trader at one bank.
Turkish companies usually sell dollars at the month end to pay corporate taxes, helping the lira.
The rise of over 12 percent in crude oil prices in the past month revived concerns over Turkey’s current account deficit, which stands at 10 percent of gross domestic product, and triggered capital outflows from Turkish markets.
The lira touched its weakest in ten days against the dollar at 1.7755 and bond yields jumped more than 15 basis points on Monday.
Turkey’s economy grew around 8.3-8.5 percent in 2011, according to Economy Minister Zafer Caglayan. The current account gap rises in tandem with economic growth as Turkey needs to import energy to keep its economy running.
Another reason for the lira’s weakness was last week’s central bank decision to cut its lending rate and raise lira liquidity provided via one-month repo auctions.
As inflation fears eased with oil prices, the yield on Turkey’s two-year benchmark bond declined to 9.22 percent from a previous close at 9.34 percent.
“Yields rose yesterday due to concerns on inflation and further lira tightening from the central bank. Today we see some decline in oil prices and lira strengthening, which supported the bond market,” a fixed income trader at one bank said.
“As long as the lira doesn’t decline further, yields could decline in a cautious way,” he added.
The Central Bank said it would inject 7 billion lira through a one-week repo auction into markets on Tuesday, the same amount as maturing repos.
Although the bank has been easing liquidity since early January, bond investors are worried that it could tighten again if lira weakens sharply. Tighter liquidity conditions push banks to sell some of their bond portfolios to meet liquidity needs.
The Istanbul stock index was 1.19 percent higher at 59,521 points, slightly outperforming a 0.93 percent rise in the MSCI emerging markets index.
“Technically speaking, we expect to see initial trade above 59,000 and the market to aim for 59,500 if the recovery mood is not dented by commodity prices,” wrote analysts at Ekspres Invest. (Writing by Seltem Iyigun; editing by Anna Willard)