Turk markets rebound after Fed move

ISTANBUL (Reuters) – Turkey’s battered markets rebounded strongly yesterday after the US Federal Reserve cut its discount interest rate, pushing shares up nearly 5 percent and lifting the lira 2 percent on the day. The Fed move helped to undo some of the damage on Thursday when shares fell as much as 9 percent amid global worries over the troubled US credit market and its propensity to damage the wider economy. Turkey’s lira had also depreciated some 5 percent on Thursday, sliding as far 1.4200 against the dollar. But after the Fed cut its discount rate by a half point, the lira closed at 1.3585, 2 percent firmer than Thursday’s close of 1.3860. It gained further to 1.3500 in Monday-dated trade. «The Fed cut its discount interest rates so that will affect Turkish markets positively as sentiment improves… We have to wait and see where the lira will settle, but we will continue to follow global sentiment,» said Emir Baruh, a forex trader at Turkish Investment. The main share index ended 4.73 percent higher on the day at 46,577 points, after closing 6.8 percent lower on Thursday. It now stands some 17 percent below its record high of 56,309 in July but still up 19 percent from its end-2006 level. The bourse saw record volumes with a total of 3.43 billion lira in trade. Turkish assets are particularly vulnerable to shifts in global risk because of the country’s large current account deficit. However, high interest rates and large dollar holdings built up by locals act as a cushion. The yield on Turkey’s benchmark May 5, 2009, fell to 18.52 percent in Monday-dated trade after closing at 18.71 percent. Cautious optimism «It is still too early to say whether the Fed’s decision has just brought temporary relief or whether it means that the situation is now being taken under control… but I think there will be cautious optimism in the coming days for the situation to be resolved,» said one bond dealer. Investors are also eyeing political developments after President Ahmet Necdet Sezer declined to approve Prime Minister Recep Tayyip Erdogan’s new cabinet lineup on Thursday, saying the list should be submitted to the next head of state instead. Erdogan said the decision should not be seen as a snub but as a courtesy toward Sezer’s successor. Turkey’s presidential election, starting on Monday, will also be closely watched by investors, with Foreign Minister Abdullah Gul likely to win despite opposition to the ex-Islamist from Turkey’s secular elite, including army leaders. Turkey’s top general refused to comment on the presidential election late on Thursday. The military had earlier issued statements saying it hoped that the next president would be actively secular. The country’s top business group said yesterday that Gul met the requirements needed to be president.