* All Turkish assets firm after current account data
* August current account deficit at $1.18 bln
* C/a deficit figure lower than forecast
ISTANBUL, Oct 11 (Reuters) - The Turkish lira and bondsfirmed on Thursday as data showing a lower-than-expectedcurrent account deficit for August underpinned prospects foreasier monetary policy and reduced demand for dollars.
Turkish shares were trading at their highest in 16-months,buoyed by hopes that ratings agency Fitch, due to conduct anannual review of Turkey soon, will upgrade its credit rating.
Turkey's August current account deficit fell to $1.18billion, its lowest level since October 2009, central bank datashowed on Thursday, and was smaller than a Reuters poll forecastfor a deficit of $1.750 billion.
By 1011 GMT the lira had firmed to 1.8130 against the dollar, from 1.8165 late on Wednesday.
"As the current account deficit falls, importers' demand fordollars is likely to be lower. Expectations for Turkey to beupgraded to investment grade also is a positive factor for thelira," said Bilge Gonen, manager of the foreign exchange desk atEurobank Tekfen.
Late in August, Fitch said it may raise Turkey's long-termrating to investment grade if it makes progress towards itspotential growth rate, trims inflation to its target rate andnarrows the current account gap to a more sustainable level.
Currently, Fitch rates Turkey's creditworthiness at BB+ witha stable outlook, one notch below investment grade. The agencysaid on Wednesday it will be looking at Turkey's credit ratingquite soon.
The markets in Turkey were keeping an eye on border tensionwith Syria.
The yield on Turkey's two-year benchmark bond
fell to 7.59 percent from a Wednesday's closeat 7.63 percent.
"After the data, investors bought short-term bonds onprospects the bank will ease its policy as the economy slows.Unless there is any selling arising from Syria, markets don'texpect any tensions," said Suha Yaygin, an emerging marketstrader at TD Securities.
Turkey's main share index was up 1.08 percent, itshighest level since May 2011, largely outperforming a 0.08percent fall in the emerging markets index .
"Comments from Fitch and the current account deficit pushedshares up. They allow investors to neglect Syria risks. Thedownward revision in growth expectations also supports the indexas it strengthens the hopes that the central bank will cut theupper end of the interest rate corridor," said Hakan Tezcan,strategist at YF Securities.
The bank cut the upper end of the interest rate corridor by150 basis points to 10 percent for the first time in sevenmonths in September.
"We expect Fitch to raise the outlook to positive fromstable and a credit rating upgrade in the first quarter of2013," Tezcan said.
(Writing by Seltem Iyigun; Editing by Anthony Barker)
((seltem.iyigun@thomsonreuters.com)(+90 212 350 70 62)(ReutersMessaging: seltem.iyigun.thomsonreuters.com@reuters.net))
Keywords: MARKETS TURKEY/