UPDATE 2-Turkey sees rebalanced economy picking up this year

* Economy seen growing at least 4 pct in 2013

* Growth seen better balanced after domestic demand slowed

* Wide current account deficit remains key weakness

(Adds quotes, analyst comment, background)

ANKARA, Jan 15 (Reuters) - Turkey's economic growth will pick up gradually this year and inflation will fall, Finance Minister Mehmet Simsek said on Tuesday, but its wide current account deficit is set to remain a weakness.

Simsek said the economy grew around 3 percent last year, well below the heady consumption-led pace of previous years and was heading up in 2013 to growth of at least 4 percent, a forecast supported by the World Bank.

"We managed the soft landing process well, the economy slowed down under control ... The fact that we closed 2012 with about 3 percent growth could be seen as success," Simsek told a news conference in the capital Ankara.

"This year we will return to strong and balanced growth."

Turkey's economy was the fastest-growing in Europe in 2011, expanding 8.5 percent, but domestic demand slumped last year with net exports instead driving headline growth as companies diversified into new markets.

That rebalancing helped trim the current account deficit, Turkey's main economic weakness and a measure of a country's competitiveness and fiscal stability, from 10 percent of national output in 2011 to below the government's target of 7.3 percent.

But it remains above the 6.4 percent level at the end of 2010, when the central bank introduced a policy mix of daily liquidity injections, an adjustable interest rate corridor and a low policy rate to try to bring it down.

As domestic demand picks up, reversing some of last year's rebalancing despite continued strong exports, pressure on the deficit could build again.

"Turkey's economy had a soft landing in 2012 for the first time in the country's recent economic history, with external and internal balances improving significantly," the World Bank said in an economic note on Turkey, published twice yearly.

"Despite the adjustment, the current account deficit remains large and Turkey's dependence on short-term financing is a critical vulnerability," it said.

It expected Turkey's current account deficit to widen to 7 percent of national output this year from 6.8 percent in 2012, before narrowing back to 6.8 percent in 2014.

The Bank forecast economic growth of 4 percent this year and 4.5 percent in 2014, with the contribution of net exports expected to remain slightly positive.

STICKY INFLATION

Turkey's central bank performed a delicate balancing act based on interest rate differentials and money supply management last year to try to reinvigorate domestic demand while keeping loan growth under control to prevent it stoking inflation.

Inflation fell in December to its lowest year-end level since central bank price targeting began in early 2006 but pressure on core prices increased, suggesting the bank's policy this year may start to be more cautious.

Simsek said inflation was expected to fall to 5.3 percent this year from 6.16 percent in 2012. The World Bank was more cautious, seeing consumer price inflation inching down to 6.1 percent this year and 5.2 percent next.

"For the year ahead I would expect a gradual recovery ... albeit inflation might prove quite sticky," said Timothy Ash, head of emerging markets research at Standard Bank. "I expect monetary policy to be much more cautious going forward, with stability and gradual recovery appearing as the buzz words."

Central bank Governor Erdem Basci said on Dec. 25 the bank would continue to use its mix of a managed interest rate corridor -- the difference between its overnight lending and borrowing rates -- as well as forex and lira liquidity management tools in 2013.

Simsek said the improving economic outlook for this year would not alter the government's spending plans.

"We will not ease fiscal discipline despite the positive prospects for this year," he said, estimating the budget deficit at 2 percent of gross domestic product last year.

(Additional reporting by Ozge Ozbilgin in Ankara, Seda Sezer and Seltem Iyigun in Istanbul. Writing by Nick Tattersall, editing by Mike Peacock)