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UPDATE 3-Turkish markets fall after c.bank steps

By Ece Toksabay ISTANBUL, Nov 12 (Reuters) - The Turkish lira fell on Friday after the central bank raised the lira reserve requirement and on Thursday slashed the overnight borrowing rate in a move apparently aimed at discouraging speculative capital inflows. 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 startled the market by slashing the overnight borrowing rate to 1.75 percent from 5.75 percent. "The harsh cut in the overnight borrowing rate is a surprise for the markets. On the other hand, the 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 closed at 1.4280 having weakened to as much as 1.4415. It closed on Thursday at 1.4230. The benchmark bond yield was a touch lower at 7.76 percent. There was little market reaction to the unemployment rate, which rose to 11.4 percent in the July-September period from 10.6 percent in the June-August period. The National ISE 100 index fell 0.76 percent to 69,042, performing better than the MSCI index of benchmark emerging stocks, which dipped 1.64 percent. The index of banking shares fared worse than other stocks, closing down 1.29 percent after the central bank moves. Banks have complained higher reserve ratios hit their margins, and they have to increase costs for consumers. Turkish Central Bank Governor Durmus Yilmaz said on Friday after the hike in the reserve requirement that credit expansion did not currently point to the economy overheating but signalled more rises could be on the way if loan growth escalates further. Amid a swathe of results on Friday Akbank, Turkey's second largest lender by market value, posted unconsolidated net profit down 35 percent to 439 million lira. Its shares closed down 2.23 percent at 8.78 lira. Turkey's largest publishing group Dogan Yayin Holding AS posted a third quarter net profit of 16.4 million lira on Friday, undershooting a Reuters' poll forecast of 59.3 million. Its shares closed up 0.56 percent. Isbank posted third quarter net profit up 33 percent that contrasted with falling profits reported by peers, as it was helped by favourable valuation methods of inflation-linked bonds, according to analysts. Unconsolidated net profit for the period rose to 577.7 million lira ($404 million), below the average forecast in a Reuters poll of 594 million lira. Its shares fell 0.93 percent to 6.4 lira. Turkish Airlines dropped 3 percent after it posted a 23 million lira net loss in third quarter, significantly underperforming forecasts. "The solid operating performance was overshadowed by higher than expected forex losses," Oyak Securities said. (Writing by Ece Toksabay; Editing by Ron Askew) (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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