(Corrects second paragraph to show lira firmer, not weaker)
ISTANBUL, Oct 12 (Reuters) - Turkey’s skittish lira moved in and out of negative territory on Friday as investors weighed prospects for the release of a U.S. pastor whose trial has strained relations with Washington.
The lira was trading at 5.8975 to the dollar at 1043 GMT, slightly firmer than Thursday’s close. Earlier on Friday, it firmed to 5.85 - its strongest level in two months - before reversing course.
It gained 3 percent on Thursday on expectations that the pastor, Andrew Brunson, will be returned to the United States after Friday’s court hearing.
“If he is released, it would be a major positive signal for the lira and should prove sufficient for USD/TRY to convincingly break below the support area around 6.00 towards the 5.6968 level,” Piotr Matys of Rabobank said in a note to clients.
The case of Brunson, an evangelical Christian from North Carolina, has deepened tensions between the NATO allies, helping to send the Turkish currency down 40 percent this year. He faces terrorism charges, which he denies.
NBC News reported that the White House expected Brunson to be released by Turkey and returned to the United States in the coming days, according to two senior administration officials and another person briefed on the matter.
NBC cited its sources as saying that under an agreement which U.S. administration officials recently reached with Turkey, Brunson is supposed to be released after certain charges against him are dropped at Friday’s hearing.
The report could not be confirmed.
Brunson’s lawyer told Reuters earlier that new prosecution witnesses expected to testify on Friday in his trial lacked relevance as their testimony will focus on incidents after his arrest.
Istanbul’s main stock index was up 0.41 percent, with shares in state lender Halkbank rising 3.3 percent, having briefly dropped 6.2 percent before a temporary suspension in trading.
A U.S. judge sentenced Halkbank executive Mehmet Hakan Atilla in May to 32 months in jail after he was convicted of taking part in a scheme to help Iran evade U.S. sanctions. The case is another source of Turkish-U.S. strains.
Turkey has dismissed the case as politically motivated and its finance minister has said he does not expect Halkbank to face any fine in relation to dealings with Iran. (Reporting by Daren Butler and Sarah Dadouch; Editing by Ali Kucukgocmen, David Dolan and David Stamp)