LONDON (Reuters) – Turkey’s external debt rose for the 10th consecutive trading session yesterday as investors expressed their opinion that the US-led war in neighboring Iraq would end quickly, reducing risks for Turkey’s economy. US-led forces increased their presence in Baghdad, the Iraq capital, yesterday. In Basra, the country’s second-largest city, British forces said they had won control of the city and were beginning to draw up plans for a new city government. «The Americans and the UK seem to be saying that an end to military action is in sight, I guess people are buoyed by optimism on that,» said an investor in London. «In Turkey’s case, some people believe it will be a short and sharp war, and Turkey is still going to get some cash out of the USA,» he said. Turkey’s segment of the industry benchmark, JP Morgan’s Emerging Market Bond Index plus, fell by 21 basis points (0.21 percent) in yield premiums, to 829 basis points over treasuries. The index was at 616 basis points over treasuries, one basis point lower, a very narrowly decline in risk perception. Turkey’s recent gains reverse some of the sharp falls seen in March. Then, the country had refused to allow the USA to station troops on its territory ahead of a war in Iraq, only for the USA to begin fighting without Turkey’s support. Turkey had expected the USA to offer $6 billion in grants, scalable to $30 billion in secured loans, in exchange for troop access. When the war began late on March 19, Turkey had no promises of US cash, and the USA had no promises of military access. Turkey finally allowed US military overflights, and received promises of $1 billion in grants from the USA. In recent days, the country’s leaders have also made firmer-sounding pledges to implement the country’s International Monetary Fund program. Turkey’s benchmark 2030-dollar bond has climbed 8.5 percent so far this month, after falling 20 percent in March, as investors fretted about the impact of war on Turkey’s economy. «We are seeing a bit of an overreaction from the market concerning Turkey,» said Amir Ben Gacem, emerging debt strategist at HSBC Markets in London. «Sooner or later, the market will start looking at Turkey’s fundamentals, and Turkey’s ability to fulfill IMF targets. When the market wakes up to these specific realities, it may not be that positive.» Until recently, the market believed that Turkey’s ruling Justice and Development Party (AK) had little enthusiasm for pledges in the $16 billion program, agreed to by the previous government before it left office at the end of October. «People want to see a bit more evidence from the AK (of commitment to the IMF program),» said Tim Ash, emerging debt strategist at Bear Stearns in London. «Coordination and implementation have not been their strong points.» Turkey’s current leaders signed and delivered a letter of intent to the IMF last weekend, and also agreed to postpone substantial disbursements to later in the year. «We believe that such a rescheduling reflects the IMF’s lack of confidence in the government’s implementation of policy commitments, but it is positive for the market, as it will provide a persistent incentive for the government to stick to the economic program,» said JP Morgan in a daily research report. Another fund manager in Paris said that investors were not yet keen to buy new debt as the market now appeared expensive. But they were happy to hold bonds that seemed to be rising in price. «There are no compelling reasons to buy now. But the market is still strong, so we want to hold on to our longs,» he said. Deposits have been flooding into emerging bond funds this year, including gains of more than 2 percent of assets under management last week alone, according to research firm AMG.