(Adds analyst comment, details, background)
By Selcuk Gokoluk
ANKARA, Jan 2 (Reuters) - Turkish consumer prices surprised by falling in December, official data showed on Friday, supporting expectations of a further cut in interest rates as the country looks to counter a sharp economic slowdown.
The Turkish Statistics Institute said consumer prices fell 0.41 percent month-on-month in December, compared with a forecast rise of 0.18 percent, for a year-on-year rise of 10.06 percent.
The producer price index fell 3.54 percent month-on-month in December, compared with a forecast drop of 0.12 percent, for an annual rise of 8.11 percent.
"The general trend is that we are moving towards the downside," said Simon Quijano-evans, economist with Credit Agricole Cheuvreux.
"The bottom line is this strengthens the position of the Central Bank to continue its interest rate cuts."
Turkey's economy has been hit hard by the global financial crisis and waning domestic and foreign demand. In the third quarter year-on-year gross domestic product growth hit a six-year low of 0.5 percent.
Turkish financial markets have also been hit hard and are hoping the government will secure a new loan accord with the International Monetary Fund to replace the $10 billion accord which expired in May.
The Treasury said on Friday that talks with the Fund will resume on Jan. 8.
WEAK DOMESTIC DEMAND
In a survey of 15 analysts this week, forecasts for the December CPI monthly figure ranged between a fall of 0.20 percent to a rise of 0.60 percent. Median full-year inflation forecasts were 10.72 percent for CPI and 11.97 percent for PPI.
"December inflation data clearly showed the weakness in domestic demand, the absence of inflationary pressures and thus the need to ease monetary policy further," said JP Morgan economist Yarkin Cebeci.
"We would not be surprised if the MPC (monetary policy committee) decides to cut the policy rate by another 75-100 basis points when it meets this month," he said.
At the end of October, the central bank raised its end-2008 inflation forecast to 11.1 percent, sharply above an official target of 4 percent.
Inflation was also lower than expected in November, when consumer prices rose 0.83 percent month-on-month and producer prices fell 0.03 percent. The central bank followed that with a 125 basis point cut in interest rates. (Writing by Daren Butler; editing by Chris Pizzey)