Turkish markets weak on banking law, EU worries

[HenryTo]

Turkish market still going strong despite the recent setback - and so has their currency despite constant intervention from the Central Bank. Stock market in Turkey has been up 200% since early 2003:

http://finance.yahoo.com/q/bc?s=%5EXU100&t=5y&l=on&z=m&q=l&c=
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Turkish markets weak on banking law, EU worries

ISTANBUL, July 26 (Reuters) - Turkish markets fell on Tuesday amid concerns about a presidential veto of IMF-backed banking legislation and worries about relations with the European Union, traders said.
Turkey may put off signing an EU customs union protocol, essential before it can begin accession talks with the bloc on Oct. 3, despite earlier signals it would be completed this week.

A Foreign Ministry official said on Tuesday Prime Minister Tayyip Erdogan won't sign the agreement during his trip to London on Wednesday, as had been expected. The protocol could amount to recognition of arch rival and EU member Cyprus.

"Markets are distressed about reports Turkey might issue a declaration alongside the protocol saying it does not recognise Cyprus. That has to be softened, as the EU would oppose it," said portfolio manager Ersoy Erkazanci at Koc Portfolio.

"Markets are also wondering when parliament will debate the veto on the banking law."

President Ahmet Necdet Sezer last week vetoed parts of a banking reform law sought by the IMF as a condition for the release of a loan tranche under Turkey's new $10 billion standby accord. The loan instalment has already been delayed due to the government's slow progress on other reforms.

LIRA LOSES EARLY GAINS

The lira closed at 1.3515 to the dollar, falling back from an intra-day high of 1.3405 and lower than Monday's close of 1.3360. A central bank intervention last week, when it bought an estimated $2.5 billion, has reined in the currency.

The Jan. 24, 2007, bond yielded 16.54 percent, compared to a previous 16.41 percent.

The secondary market's new benchmark, maturing on March 7, 2007, was trading at 16.40 percent in Wednesday-date trade after the treasury issued it at an average yield of 16.36 percent.

"The new benchmark could move towards the 16 percent level ... As long as bonds and the lira don't fall much, the stock market will also be supported," said Erkazanci.

Stocks fell for the first time in six days, with the main index dropping 1.85 percent to 28,730.69 points. The previous five closes had been record finishes.

Traders said profit-taking was also a factor, in addition to the banking law veto and the EU protocol.

The treasury auctioned a total 4.9273 billion lira ($3.657 billion) worth of 280-day papers and 588-day bonds, the new benchmark, on Tuesday, bringing its borrowing this month above what it had initially announced.

The central bank bought the maximum $45 million at its daily dollar-purchase auction at an average rate of 1.3487 lira to the dollar. Bids totalled 76 million.

Tuesday's purchases brings the total the bank has withdrawn from the market to $4.515 billion since resuming the purchase auctions on Dec. 22 in a bid to curb a rally in the currency spurred by optimism over Turkey's EU bid.