UPDATE 2-Turkey raises 1.62 bln lira with lira-dominated sukuk

(Recasts with amount raised)

ISTANBUL, Oct 2 (Reuters) - Turkey said on Tuesday it had raised 1.62 billion lira ($904 million) through a lira-denominated sovereign sukuk, the government's second issue of an Islamic bond as it diversifies its sources of financing.

Total bids for the two-year lease certificate stood at 3.275 billion lira, the Treasury said in a statement. The paper will pay a lease return of 3.7 percent semi-annually.

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

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 Nick Tattersall)

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