February 24, 2012 / 10:42 AM / 7 years ago

Turkish lira gets lift, but oil price concerns linger

* Lira firmer against dollar, yields up on profit taking

* Shares rise slightly, Boyner up 2.6 pct on M&A news

* Investors cautious about oil prices negative effects-analyst

ISTANBUL, Feb 24 (Reuters) - The Turkish lira gained respite on Friday, rising after a sell-off driven by concerns about the impact on the energy-dependent economy of rising oil prices, which remain a key risk, while bond yields climbed on profit-taking.

By 1041 GMT, the lira traded at 1.7607 versus the dollar, stronger than 1.7638 in late trade on Thursday.

“The fact that the lira weakened above the 1.76 technical level during yesterday’s sell-off triggered some reaction buying today,” said a forex trader at one bank.

But in a sign of the currency’s vulnerability, against its euro-dollar basket the lira slipped to 2.0575 from 2.0416 late on Thursday.

Brent crude rose above $124 on Friday, on track for a fifth straight weekly gain, as worries over Iranian supply and upbeat U.S. economic data offset concerns that high oil prices could snuff out demand growth.

Resource-poor Turkey is vulnerable to high energy prices, which also hamper its efforts to reduce a current account deficit that reached nearly 10 percent of gross domestic product in 2011.

“A $10 rise in oil prices creates an additional cost of $4 billion in Turkey’s current account gap. So in two weeks the current account bill rose by $6 billion, which explains the lira’s negative performance,” wrote Fatih Keresteci, a strategist at HSBC Istanbul.

“Besides, the central bank decision to narrow the interest rate corridor contributed to the lira’s weakening... Foreign investors reduced their exposure to Turkey due to the negative effect of rising oil prices on inflation and current account gap,” Keresteci said, adding the 1.74 level was a strong resistance level for the dollar-lira rate.

The central bank unexpectedly cut its lending rate by 100 basis points to 11.5 percent on Tuesday and raised the amount of lira it would provide through one-month repo auctions to 6 billion lira from 5 billion, which increases liquidity and can weaken the currency.

Inflation stood at 10.61 percent in January, almost twice the bank’s year-end target.

The lira had firmed more than 7 percent versus the dollar since the start of the year supported by a trend of tighter monetary policy and a revival in global risk appetite. The currency hit a five-month high of 1.7360 on Monday.

The yield on the two-year benchmark bond rose to 9.07 percent from a previous close at 9 percent.

“The bond yields declined seriously after the central bank rate cut decision. So today, investors are selling for profit-taking,” said the head of pensions funds at an investment company.

“I expect the benchmark yield to decline below 9 percent after the debt auctions in March. If the central bank continues to loosen liquidity, investors will increase their bond buying,” he said.

On Wednesday the yield hit 8.88 percent, its lowest since October on hopes for further central bank liquidity easing.

The Treasury plans to borrow 11.5 billion lira from domestic markets in March. The first debt auction will be on March 5.

The Istanbul share index rose 0.2 percent to 59,760 below a 0.27 rise in the MSCI emerging markets index.

Shares of retail group Boyner Holding, which owns listed Boyner Magazacilik was 2.65 percent up at 3.10 lira after it said it acquired 63 percent of Turkish retailer YKM for 190 million lira ($108 million). (Writing by Seltem Iyigun)

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