Turkish rebound

ISTANBUL (Reuters) – Turkish shares, bonds and the lira all surged yesterday, partially recovering recent sharp losses after the US Federal Reserve signaled that interest rate rises may be coming to an end. The main Istanbul share index jumped 4.18 percent to 35,453.31 points, building on a 2.48 percent gain on Thursday. It is still down 11 percent from the end of last year. After losing as much as a quarter of its value over the last two months, the lira strengthened to 1.5800 against the dollar on the interbank market from Thursday’s close of 1.6035. It is still 17 percent weaker than at the end of April. «The Fed statement was interpreted positively. The bourse was also affected positively by relaxation in the foreign exchange and bond markets,» said Ata Investment Portfolio Director Murat Inceleme. Banking sector shares have been bought in particular, he said. The Fed raised rates by 25 basis points to 5.25 percent, as expected, but said slowing economic growth could help rein in inflation. The comments have sparked a rally in global stocks, bonds and commodities and pushed the dollar lower. The yield on the April 9, 2008 benchmark fell to 20.99 percent from 21.38 percent on Thursday on the secondary debt market. Benchmark yields stood at 13.8 percent at the end of last year. Traders say Turkish central bank auctions to support the lira and firms’ purchases of lira to pay taxes have also helped boost the currency. «(The dollar) has retreated on the Fed move and general lira tightness. Yields may fall in tandem with the lira’s rise but only to a limited degree before we get the new inflation data,» said one Turkish banker. Turkey is due to announce June inflation data next Monday. Higher-than-expected May inflation helped fuel the big fall in Turkish markets in recent weeks which in turn led the central bank to hike interest rates three times. Market sentiment was also boosted by data showing stronger-than-expected economic growth in the first quarter. Gross national product expanded 6.3 percent year-on-year in Q1, exceeding a forecast of 5.3 percent but down sharply from the previous quarter. «The… growth in the first quarter despite the bad weather conditions and weak exports indicates that growth in the second quarter will exceed 7 percent,» said Finans Investment economist Volkan Kurt. «Domestic demand is very strong… We will slow down in the second half because of the rise in interest rates but as much as growth slows I don’t think it will fall below 5 percent,» he said.