UPDATE 1-Turkish markets fall after c.bank steps

ISTANBUL, Nov 12 (Reuters) - The Turkish lira weakened on Friday after the central bank slashed the overnight borrowing rate and raised the lira reserve requirement, in a move withdrawing 2.1 billion lira from the market. Shares also fell, hit partially by foreign market weakness, while bond yields were steady after weakening on Thursday due to European Union debt worries. The central bank increased the lira reserve requirement rate for banks to 6 percent from 5.5 percent on Friday. On Thursday evening, it kept its one-week repo policy rate constant at 7 percent and cut the overnight borrowing rate to 1.75 percent from 5.75 percent in an unexpected move. "The harsh cut in the overnight borrowing rate is a surprise for the markets. On the other hand, increased reserve requirement ratio should further limit the liquidity for banks hence will have a negative impact on margins." said Tera Research in a note. The lira traded at 1.4415, weakening from Thursday's close of 1.4230, while the benchmark bond yield was steady at 7.77 percent. The National ISE 100 index fell 1.49 percent to 69.,042, in line with the MSCI index of benchmark emerging stocks, which dipped 1.64 percent. Shares in Turkish Airlines were down more than 3 percent after it announced late on Thursday that it posted a 23 million lira net loss in third quarter. (Editing by Giles Elgood) (ece.toksabay@reuters.com; +90 212 350 7052; Reuters Messaging: ece.toksabay.reuters.com@reuters.net)) Keywords: MARKETS TURKEY/ COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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