ISTANBUL (Reuters) – Turkish shares ended at a record high and the lira was flat yesterday as investors shrugged off a possible operation against Kurdish rebels in northern Iraq and focused on the prospect of further interest rate cuts. The lira closed at 1.1855 against the dollar on the interbank market, firming from 1.1890 in early trade. It was still down slightly from a close of 1.1850 on Monday. The main Istanbul stock index closed 2.9 percent higher at a record high of 57,910.57 points, up nearly 50 percent from the end of last year. There was little reaction to the announcement that Prime Minister Recep Tayyip Erdogan had given the go-ahead for an incursion into northern Iraq where many rebels are based, if such an operation is thought to be necessary. But analysts said the news had the potential to weigh on markets. «This is the sort of issue that can cause a turnaround in sentiment as it bears the risk to upset relations between the EU and Turkey (and) increase tension between Turkey and the US,» said Unicredit MIB economist Simon Quijano-Evans. He said it could also negatively affect exports into Iraq at a time when the Turkish current account deficit is widening again and indirectly affect the deficit through upward pressure on oil prices. Attention remained focused on interest rates after the Turkish central bank cut rates by 25 basis points last month and further rate cuts are expected after lower-than-expected September consumer price inflation data. «The September inflation figures were positive. Even if those this month are bad, the central bank is expected to cut rates. Hence, banking shares are very strong,» said Enver Gursoy from Fortis Investment. Following the statement from the prime minister’s office, Defense Minister Vecdi Gonul said Turkey’s parliament must authorize any large-scale military incursion into northern Iraq. He said no parliamentary authorization is required for more limited, so-called «hot pursuit» operations across the border. The latest government statement followed a series of rebel attacks on security forces which have claimed the lives of 15 soldiers since Sunday. White House spokesman Gordon Johndroe said yesterday the United States, which has expressed opposition in the past to an incursion, was committed to working with Turkey and Iraq on combating the PKK.