ISTANBUL (Reuters) – Turkish shares and the lira fell sharply yesterday in what brokers said may be early selling ahead of a possible war in neighboring Iraq, which would spell major problems for Turkey’s fragile economy. The main ISE-100 share index closed down 7.11 percent at 11,511.01 points, extending Monday’s 5 percent fall on reports of troop movements along the US ally’s southern border with Iraq. The lira slid to best bids of 1,591,000 to the dollar in late trading value-dated today after closing the day at 1,578,000. It had ended Monday at 1,544,500 lira. «After yesterday’s fall, the expectation had been for reaction-buying to bring it up again. But as well as plans for a possible Iraq war, worries about whether there’ll be a Cyprus deal or a deal with the International Monetary Fund (IMF) are driving the market lower,» said Mahir Ulutas at Iktisat Investment in Istanbul. Turkey fears war across its borders could compromise a tentative recovery from its worst economic slump since 1945 and spark unrest in the mainly Kurdish southeast. Brokers pointed to reports on local television channel NTV on Sunday of movements of US troops and equipment into Kurd-controlled northern Iraq from Turkey. Washington declined to comment on the allegations. Average yields on closely watched December 3, 2003 debt rose to 50.83 percent from the 48.73 percent they had traded at late on Monday. The same paper was at 51.59 percent in trade dated today. An IMF team is in Ankara this week discussing the future of a $16 billion loan pact with the new Justice and Development Party government. Turkey’s economy is expected to grow by 6.5 percent by the end of the year and consumer price inflation (CPI) is seen as falling to 31 percent, the treasury and central bank said in a statement yesterday. Turkey’s IMF target for growth in 2002 was 4 percent and CPI was seen at 35 percent after a devastating financial crisis last year brought economic contraction of 9.4 percent and inflation that soared past 90 percent early this year. The statement also said the treasury and central bank saw inflation falling to 20 percent and gross national product (GNP) reaching 5 percent next year.