* PM quoted as saying IMF-Turkey agreed on two-year deal
* Bonds, lira rally
* Paper says signing of deal expected in January
ANKARA, Dec 31 (Reuters) - The International Monetary Fund and Turkey’s government will clinch a loan deal after the global lender agreed to Ankara’s conditions, Turkey’s Milliyet newspaper quoted Prime Minister Tayyip Erdogan as saying.
Turkey’s financial markets have clamoured for a stand-by deal since the previous $10 billion accord expired in May 2008, but Erdogan has rejected some demands from the IMF.
“Turkey’s conditions have been accepted,” Erdogan was quoted as telling his party’s executive board on Wednesday night.
Erdogan said the IMF called for a three-year deal but the Turkish government insisted on two years. The paper said the two-year deal is expected to be signed in January.
Markets had expected a three-year deal worth as much as $50 billion.
The IMF office in Ankara was not available to comment.
The Turkish lira IYIX= firmed to 1.4990 against the dollar on the interbank market after the report. It closed at 1.5125 on Wednesday.
The yield on the benchmark Aug. 3, 2011 bond <0#TRTSYSUM=IS> touched 9.35 percent in over-the-counter trade, versus the previous day’s 9.44 percent.
But there was some doubt in the markets, pending official confirmation.
“Yesterday, Economy Minister Babacan made similar yet more vague announcements regarding a proverbial IMF deal however the markets are now more sceptical because the story has been told too many times,” Tera Brokers said in a note.
Turkey and the IMF have been locked in negotiations since the previous $10 billion stand-by accord expired in May 2008, and the government blamed stringent IMF conditions for the delay.
Some economists said they would wait for the IMF’s confirmation of the reports.
“Note that in an interview with Wall Street Journal in October, Erdogan had stated that Turkey and IMF agreed on key sticking points; however, this statement was not verified by IMF later,” Finansbank said in a note.
“Accordingly, we will be waiting for a statement from IMF rather than relying on this admittedly vague news story,” the bank’s note added. (Reporting by Selcuk Gokoluk; Editing by Mike Peacock)