December 29, 2011 / 4:45 PM / 8 years ago

UPDATE 1-Turkish lira extends losses, auction eyed

* Bond yields decline, lira weakens

* C.Bank holds intraday repo auction as exceptional day

* Shares up almost 1 pct on reaction buying (Adds closing prices, fresh quotes)

ISTANBUL, Dec 29 (Reuters) - The yield on Turkey’s benchmark bond dipped on Thursday after the central bank held its first one-week intraday repo auction, while the lira weakened against the dollar despite the bank selling a higher-than-usual amount of dollars at its forex auction.

The Turkish Central Bank injected 15 billion lira ($7.81 billion) into the market in a one-week intraday repo auction on Thursday at an average simple rate of 10.63 percent.

The yield on Turkey’s benchmark bond maturing on Dec. 4, 2013 closed at 10.98 percent in thin volumes after rising to as much as 11.48 percent in early trade and compared with a previous close of 11.07 percent.

“We expect yields to increase further because of the uncertainty of the central bank’s policies,” said Tufan Comert, strategist at Garanti Securities.

Central Bank Governor Erdem Basci said on Wednesday the bank would hold intraday one-week repo auctions within the framework of the bank’s open market operations strategy on “exceptional days”.

“Today banks didn’t need to use the primary dealers’ repo facility from the central bank. We will monitor tomorrow’s (one-month) repo auction. It will be important as the interest rate won’t be fixed (by the central bank),” said a manager at the liquidity desk of one bank.

The central bank said early in the week that it will hold one-month repo auctions every Friday according to the standard method and that the upper limit of each auction would be 3 billion lira ($1.58 billion).

In standard repo auctions, banks tell the central bank the amount they want and the interest rate they are ready to pay. As the central bank sells at the highest rates, banks with lower bids have to fund themselves at higher rates on the interbank market.

The bank also said on Wednesday that on exceptional days the bank may sell foreign currency directly to the market.

By 1627 GMT, the lira traded at 1.9185 versus the dollar, having touched a record low of 1.9215 in late trade on Wednesday, compared with 1.9155 the previous afternoon.

The central bank sold $150 million, higher than the $50 million sold on normal days, in its forex-selling auction on Thursday, with bids amounting to $619 million, bank data showed .

Against its euro-dollar basket, the lira traded at 2.1977 compared with a previous close of 2.2015.

“Upside bias continues for the lira-dollar as markets are waiting for the central bank to intervene directly and they want to test it. If the bank intervenes, we think the lira could appreciate 1 percent versus the dollar from the point where intervention starts. The level of 1.8950 is crucial for short-term support,” said a forex trader of a bank in Istanbul.

Istanbul’s main share index closed up 0.97 percent at 52,053.62 points.

“We saw thin reaction buying after yesterday’s sell-off. I think this will also continue tomorrow. The volatility in thin trading isn’t a good indicator for the trend during the first week of January,” said Ozgur Yurtdasseven, research manager at Garanti Securities. (Writing by Seltem Iyigun; editing by Stephen Nisbet)

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