REFILE-Turkey markets weaker, cautious ahead of referendum

Published 09/07/2010, 08:17 AM
Updated 09/07/2010, 08:20 AM

* Lira, shares weaken

* Bond yield below forecast in auction

* Markets to close on Weds for 2-1/2 day market holiday

(Fixes date)

ISTANBUL, Sept 7 (Reuters) - Turkish markets weakened on Tuesday as investors stayed cautious ahead of a weekend referendum on government-backed constitutional changes.

The result will be seen as a pointer to how the ruling AK Party will fare in a general election due by July next year.

Dealers said shares moved lower in line with falls in Europe and emerging markets.

The main Istanbul share index fell 0.75 percent to 60,676.15 points, underperforming the MSCI emerging markets index which fell 0.5 percent.

Two recent opinion polls suggest undecided voters could sway Sunday's referendum in both directions, with 'yes' and 'no' votes closely balanced.

"This week the market is a bit more cautious as the most recent polls suggest a weakening of the 'yes' vote. It looks like it will be a close call," said Ceren Karacak, group manager at Finans Invest.

Markets may turn negative if the constitutional changes are rejected in the referendum as this will be seen as a blow to the government of Prime Minister Tayyip Erdogan ahead of a parliamentary election due by July 2011.

Erdogan's government is seen as investor friendly, having overseen economic reforms needed to help Turkey recover from an economic crisis at the start of the decade.

The lira weakened to 1.5110 against the dollar on the interbank market, having closed at 1.5010 on Monday.

The benchmark April 25, 2012 bond's yield rose to 8.14 percent from Monday's 8.10 percent, but was down from levels between 8.14-8.17 percent at the opening.

The Treasury sold a net 1.863 billion lira ($1.24 billion) worth of the benchmark bond at auction on Tuesday at an average yield of 8.13 percent, below a poll forecast of 8.18 percent.

Including non-competitive sales to primary dealers of 1.751 billion lira ahead of the auction, total net sales to the market amounted to 3.614 billion lira, exceeding a poll forecast of 2.82 billion lira.

The Turkish bond market has attracted massive inflows from foreign investors in recent weeks, sending their share of Turkish debt to its highest since Oct 2007. (Writing by Daren Butler; Editing by Ron Askew)

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