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Fitch revises Turkey's outlook to "stable", does not expect impact from Syria operation

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ISTANBUL, Nov 2 (Reuters) - Ratings agency Fitch on Friday revised Turkey's outlook to "stable" from "negative" and affirmed its "BB-" rating, saying it did not expect credit fundamentals to be impacted by Ankara's operation in northeastern Syria.

"Turkey has continued to make progress in rebalancing and stabilising its economy, leading to an easing in downside risks since our previous review in July," the agency said.

It cited improvement in the current account balance, increase in forex reserves, falling inflation and continuing growth, and added that the lira had held up despite interest rate cuts.

Fitch said the rating was pressured by weak external finances, high inflation, economic volatility, as well as political and geopolitical risks.

"Turkey's track record of high and volatile inflation, weak monetary policy credibility and limited central bank independence heighten the risk of renewed macroeconomic instability," it said.

The agency also said it did not expect Ankara's operation in northeastern Syria to have an impact on credit fundamentals without a wider-scale conflict.

U.S. President Donald Trump briefly imposed sanctions on Ankara in October to persuade it to stop its operation in northeastern Syria against Kurdish militia fighters, former U.S. allies.

But the U.S. House of Representatives this week backed a resolution calling on Trump to impose sanctions on Turkey over its operation. Ankara has also faced the prospect of U.S. sanctions due to its purchase of Russian S-400 missiles.

Fitch said the U.S. position made it more likely that the implementation of any sanctions due to the S-400 purchase would be delayed or be lighter than set out in legislation.

"Nevertheless, this week the U.S. House of Representatives passed a new bipartisan bill threatening new sanctions on Turkey, and U.S. policy in these areas has the potential to change quickly," it said. (Reporting by Ali Kucukgocmen; Editing by Daniel Wallis)