UPDATE 1-Turkey says to issue lira-denominated sukuk on Oct 3

(Adds comment, details)

ISTANBUL, Oct 2 (Reuters) - Turkey will issue a lira-denominated sukuk worth up to 1.62 billion lira ($900 million) on Wednesday, the treasury said, the government's second issue of an Islamic bond as it diversifies its sources of financing.

Demand for the two-year paper is expected to be high after the country raised $1.5 billion through its first foray into the global Islamic bond market last month.

The lira sukuk will have a two-year maturity, the treasury said late on Monday.

"After a sukuk issuance of $1.5 billion in September in international markets, we expect the Treasury to issue a lira denominated lease certificate of 1-1.5 billion tomorrow," said Ugur Kucuk, a strategist at Is Investment.

The debut bond offering last month attracted an order book nearly five times the issue size.

"Participation banks have been expecting this instrument. It's very attractive for participation banks, because it has a secondary market, and because of its zero risk from a capital ratio perspective," the Turkish unit of Bahraini lender Al Baraka's deputy chief executive Ayhan Keser said last month.

"Participation banks" is a term used in Turkey to refer to Islamic banks.

($1 = 1.7964 Turkish liras)

(Writing by Seda Sezer; Editing by Lisa Shumaker and Patrick Graham)

((seda.sezer@thomsonreuters.com)(+90 212 350 7051)(Reuters Messaging: seda.sezer@thomsonreuters.com))