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Turkish lira eases, bonds flat after inflation data

* Lira eases, bonds steady after inflation

* Sept CPI rises 1.03 pct m/m, just below forecast

* Shares slightly higher

By Seltem Iyigun

ISTANBUL, Oct 3 (Reuters) - Turkish bond yields were steady on Wednesday and the lira weakened after a food price-fuelled rise in September inflation failed to dent expectations of more easing of monetary policy.

Turkey's consumer price index rose 1.03 percent month-on-month in September, broadly in line with a Reuters poll forecast of a 1.10 percent rise, for an annual increase of 9.19 percent. But the main measures of underlying core inflation - on which the central bank puts most emphasis - fell.

The yield on the two-year benchmark bond stood at 7.53 percent after the data announcement, dipping slightly from 7.54 percent. Analysts said the inflation data was already largely priced in.

By 0844 GMT, the lira eased to 1.7926 against the dollar , from 1.7906 late on Tuesday. Against its euro-dollar basket it weakened to 2.0543 from 2.0517.

"The continued fall in core inflation confirms the slowdown in the economy. Therefore, the central bank will likely continue to cut its rates. This weakens the lira," said Tufan Comert, strategist at Garanti Securities.

Among the core consumer price indicators, the "I" measure which is the most closely monitored one by the central bank while setting its policy, fell to 6.68 percent in September from 7.17 percent. It strips out food, energy, beverages, tobacco products and gold.

The bank cut the higher of the two interest rates it uses to control policy by 150 basis points to 10 percent in September, the first cut in seven months, and hinted it could do more to support a slowing economy.

"The low lira funding rate by the central bank also adds to the lira's weakness," Comert said.

In a complex policy mix in place since 2010, the bank has this year reduced the average lira funding rate for banks

to 5.81 percent, its lowest since November 2011.

The main share index was 0.18 percent higher at 67,620 points, outperforming a fall of 0.17 percent in the MSCI emerging markets index .

(Writing by Seltem Iyigun; editing by Patrick Graham)

((seltem.iyigun@thomsonreuters.com)(+90 212 350 70 62)(Reuters Messaging: seltem.iyigun.thomsonreuters.com@reuters.net))

Keywords: MARKETS TURKEY/