ISTANBUL (Reuters) – Turkish shares and the lira rose roughly 2 percent yesterday after Prime Minister Recep Tayyip Erdogan called for early general elections to end a crisis over a disputed presidential poll. Bonds were also stronger in a solid rebound after the last two days saw the biggest sell-off in a year, triggered by a standoff between the Islamist-rooted government and the secular establishment, including the powerful military. The ISE National-100 index rose 2.35 percent to 44,551 points by the two-hour midday break at 0900 GMT. Stocks sold off on Monday and Tuesday after the constitutional court ruled as invalid the first round of the presidential election. The market at one point fell 7.9 percent on Monday but has rebounded 3.3 percent from its lows. Investors remain cautious despite getting the call for early elections, which they see as the most pragmatic way out of the impasse. «Political uncertainty tops the agenda: both the early elections and the presidential elections. The market will remain cautious because the problems are still on the table,» said Umit Sener, portfolio manager at Yatirim Finansman in Istanbul. «International markets are still healthy and rising and they could help Turkish markets, but in the coming days we will preserve current levels as we all await the political developments,» he said, adding that another 2 or 3 percent rise in stocks is possible from current levels. Finance Minister Kemal Unakitan said the decision to hold early general elections was helping the market and he expected more gains to follow. But he cautioned that more fiscal discipline was needed as the nation heads to early elections. The lira stood at 1.3580 against the dollar on the interbank market, holding on to most of the gains which it made in after-hours trading following the court ruling. The official close on Tuesday was 1.3845. The partial privatization of state-bank Halkbank is likely to help keep interest in the lira as foreigners have been big investors in Turkish assets. They hold roughly 70 percent of the freely-tradable shares on the Istanbul stock market. The foreign investors association YASED said foreign direct investment – key for offsetting Turkey’s large current account deficit – would not be affected by the political standoff. It predicts FDI in 2007 will top last year’s $20.1 billion The court’s decision prompted Erdogan to say he would seek early national elections on either June 24 or July 1. The polls were due to be held by November. ‘Crisis far from over’ Danske Bank senior analyst Lars Christensen said the political situation remained very uncertain. «We have not moved closer to a compromise between the government and the secular establishment – including the military and the main opposition party CHP,» he said. «This crisis is unfortunately far from over and we again strongly recommend investors to reduce exposure to the Turkish markets,» he added. Bonds were also firmer, with the yield on the benchmark February 4, 2009, bond dipping to 18.95 percent from a close of 19.27 percent on Tuesday on early election hopes. The opposition had been demanding the early polls, but Erdogan’s Justice and Development Party (AKP) is widely expected to win after five years of strong economic growth since it came to power in 2002. Markets remained concerned about the involvement of the powerful military in the standoff. The General Staff issued a statement late on Friday criticizing the government and suggesting it could intervene to protect the secular system. Adding to the unease, Citigroup cut its recommendation on Turkey stocks to underweight from overweight on Tuesday, citing a likelihood of prolonged political turmoil.