ISTANBUL, March 2 (Reuters) - The Turkish lira weakened on Friday driven b
y easier liquidity, while bond yields steadied in thin trading despite rising oil prices which created upside risks for Turkey's double-digit inflation ahead of next week's debt auctions.
The Turkish central bank increased the total weekly stock funding amount on Friday to 29 billion lira from 27 billion lira and the monthly stock funding to 22 billion lira from 21 billion lira.
However, for the period between March 2-15, the bank decreased the lower limit of total repo funding from 25 billion lira ($14.26 billion), to 18 billion lira.
'The fact that the central bank announced a lower limit, doesn't mean that it will absolutely decrease the total funding. The bank can easily provide an amount way above the lower limit. We should wait and see what the central bank will actually do,' said Tufan Comert, a strategist at Garanti Securities.
As the central bank eased total liquidity conditions during the week, the lira eased to 1.7641 versus the dollar by 1552 GMT, compared with 1.7555 in late trade on Thursday.
'The loose liquidity affected the lira negatively. Besides, we saw some foreign investors selling lira, as rising oil prices triggered current account deficit worries,' Comert added.
Strong economic growth led to a current account deficit equivalent to 10 percent of GDP last year.
The International Monetary Fund raised its forecast for Turkey's 2012 gross domestic product growth to 2.3 percent, marking a sharp revision from the 0.4 percent growth it had forecast in January. The Turkish economy is expected to have grown around 8.5 percent in 2011.
Against its euro-dollar basket the lira stood at 2.0474, compared with 2.0468 in late trade on Thursday.
The increase in oil prices close to 11-month highs, revived worries over Turkish inflation, which is already in double-digit territory and almost double of the central bank's year-end target of 5 percent.
However, bond investors preferred to hold back ahead of next week's debt auctions as Turkey's two-year benchmark bond yield closed at 9.24 percent, virtually unchanged from a previous close of 9.23 percent.
'Despite inflation concerns after the rise in oil prices and the lira's depreciation, the bond market was very calm. There is nothing new to price in. Investors await debt auctions and inflation data,' said a fixed income trader of one bank.
Nationwide inflation data will be released on March 5 at 0800 GMT. In January, Turkey's inflation stood at 10.61 percent.
'I expect the auctions will attract strong demand. Especially the new benchmark bond auction will be important. The current one could be remain under pressure,' the trader added.
The Turkish Treasury plans to borrow 10 billion lira from domestic markets in March. Next Monday, it will tap the fixed-coupon bond maturing on Jan. 12, 2022 and on Tuesday it will issue the new benchmark bond maturing on March 5, 2014 and it will tap a CPI-indexed bond maturing on Feb. 23, 2022.
The main stock index closed virtually unchanged on Friday, rising just 0.29 percent at 60,902.41 points, slightly outperforming a 0.21 percent increase in the MSCI emerging markets index.
Trading in the Istanbul Stock Exchange resumed at 1200 GMT after the morning trading session was cancelled due to a technical problem. ($1 = 1.7535 Turkish liras)
(Writing by Seltem Iyigun) Keywords: MARKETS TURKEY/
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