* Lira recovers from initial losses
* Shares, bonds flat By Seltem Iyigun
ISTANBUL, Oct 10 (Reuters) - Ahead of its annual ratings review of Turkey, Fitch said the country was making good progress in dealing with the financial crisis, comments which helped lift the Turkish lira from an earlier 1-month low.
Late in August, the ratings agency said it may raise Turkey's long-term rating to investment grade if it makes progress towards its potential growth rate, trims inflation to its target rate and narrows the current account gap to a more sustainable level.
"We will be looking at it again quite soon. Regulatory issues mean we have to look again every year so we are quite close to that," Fitch head of Emerging Europe Sovereigns, Paul Rawkins, told a conference in London.
"What we're really looking for is whether Turkey has managed to steer its way to a soft landing. So far the evidence is good, they ticked a lot of boxes... The issues are it's still a very volatile economy," he said in a presentation.
Fitch rates Turkey's creditworthiness at BB+ with a stable outlook, one notch below investment grade.
By 1004 GMT, the lira was at 1.8176 against the dollar , virtually flat with 1.8180 late on Tuesday. In early trade touched 1.8265, its weakest level since Sept. 5.
"The fact that Fitch said it was close to reviewing Turkey's credit rating boosted the lira. We expect Fitch to review it in November. I don't think there will be a ratings upgrade but just an upgrade of the outlook," said Tufan Comert, strategist at Garanti Securities.
"We don't expect the lira to depreciate excessively in the upcoming period due to the high forex liquidity in the local market and the effectiveness of the central bank's liquidity management tools," Comert said.
Tighter monetary policy by the central bank in the last quarter of 2011 and the start of 2012 helped steer Turkey's economy softly down as growth slows, narrowing its large current account deficit and bringing down inflation.
The International Monetary Fund said on Monday it expected Turkey, Europe's fastest-growing economy last year with growth of 8.5 percent, to expand at a "more measured pace" of 3 percent in 2012 despite weak growth in the European Union, its main trading partner.
Turkey's main share index was 0.19 percent up at 68,194 points, outperforming a 0.37 percent fall in the emerging markets index .
The yield on Turkey's two-year benchmark bond
was flat at 7.63 percent.
(Additional reporting by Carolyn Cohn; Editing by Nick Tattersall and Toby Chopra)
Keywords: MARKETS TURKEY/