December 23, 2011 / 8:56 AM / in 7 years

Turkish lira eases, bank association meeting eyed

* Turkish lira slightly weaker vs dlr, yields down

* Shares rise over 1 pct

* Babacan meeting with banking association monitored

ISTANBUL, Dec 23 (Reuters) - The Turkish lira was weaker versus the dollar and the benchmark bond yield slightly declined in early over-the-counter trade on Friday while investors monitored a meeting of Banks Association of Turkey.

Deputy Prime Minister Ali Babacan, who also oversees the economy, will hold a meeting with Turkish banking association to evaluate latest developments in the global economy and banking sector. Babacan is expected to speak after the meeting at 0900 GMT.

Following two years of strong profits, Turkey’s banks have been braced for a downturn this year after the central bank raised required reserve ratios in order to slow down rampant loan growth. The central bank has said it wanted to restrict loan growth to 25 percent this year after expansion of 34 percent in 2010.

The Turkish Banks Association said in a presentation on Friday that central bank steps added an additional 8 billion lira ($4.23 billion) of costs for banking sector.

By 0820 GMT, the lira traded at 1.8909 versus the dollar, slightly weaker from 1.8890 on Thursday afternoon.

The currency weakened as much as 1.8940 per dollar on Thursday after the central bank sold $50 million in its forex-selling auction, less than the $150 million it had announced as a maximum in the morning.

“As holidays (have) started, we expect very thin volumes without any serious moves on the markets. We could see the lira strengthening. It can firm below 2.17 level versus the (euro-dollar) basket. We will monitor U.S. data in the afternoon,” said one forex.

Against its euro-dollar basket the lira traded at 2.1824, compared with a previous close of 2.1778.

The yield on Turkey’s new benchmark bond maturing on Dec. 4, 2013 stood at 10.40 percent in early over-the-counter trade, down from a previous close of 10.46 percent.

“We think the volume on the bond market will be thinner today. Without any new developments, yields would remain steady,” wrote Fatih Keresteci, a strategist at HSBC.

The central bank set the minimum amount of weekly repo auction during Dec. 12-Jan. 5 period as 18 billion lira ($9.52 billion).

This week the central bank provided 26 billion lira by its daily one week repo auctions. Some analysts said they were expecting the central bank to lower its lira funding due to the upcoming liquidity boost from the public sector transfers towards the end of the year.

Istanbul’s main share index was up 1.09 percent at 52,155.52, outperforming the MSCI emerging markets index , which was up 0.94 percent.

“In a bid to pare the pullback that sent the Turkish stocks lower in the PM session yesterday, we expect the index to rise at the open this morning. Subdued volumes and lack of clear direction persist in the market while outflows are seen in index names,” wrote analysts at Ekpres Invest. ($1 = 1.8910 Turkish liras) (Writing by Seltem Iyigun)

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