Turkish lira firms with support from central bank

ISTANBUL (Reuters) - The Turkish lira firmed on Wednesday after Central Bank Governor Erdem Basci signaled the bank is determined to support the lira and keep monetary policy tight if needed.

Speaking at a meeting in the Black Sea town of Giresun, Basci said about $7.9 billion to $8.0 billion has flowed out of Turkish markets since the beginning of May, mainly from money markets. He attributed a third of the outflows from the lira and bonds to domestic factors and the remainder to global factors.

Basci also said the lira was not currently overvalued.

Turkish markets have been hit by uncertainty over the outlook for U.S. Federal Reserve money-printing policies and by anti-government protests across Turkey, prompting the central bank to support the lira on Tuesday.

The bank said on Tuesday it planned short-term extra policy-tightening steps through open market operations, citing "excessive volatility ... due to international and domestic developments during the last month". It sold $250 million on Tuesday in five forex-selling auctions.

The lira hit its weakest level against its euro/dollar basket since October 2011, reaching 2.210 on Tuesday as clashes between the riot police and protesters continued. However it recovered to 2.1830 by 1123 GMT.

Against the dollar, it firmed to 1.8755 from 1.8906 late on Tuesday.

Bankers said Basci's comments limited losses in the lira as he signaled the bank would be there if needed.

"The central bank said they could tighten if forex volatility increases. Therefore they reduced the possibility of a depreciation in the lira," said one banker.

Turkey's two-year benchmark bond yield rose to 7.04 percent in early trade on Wednesday after closing at 6.82 percent in thin volume on Tuesday, on expectations the central bank will raise funding costs further. But later it fell with support from declining U.S. yields.

Average funding costs rose to 4.98 percent on Tuesday from 4.68 percent on Monday.

The yield on Turkey's 10-year bond, due March 8, 2023, fell to 7.65 percent after climbing to above 8 on Tuesday as investors sold long-term debt.

Shares <.XU100> were 1.93 percent up at 76,572.95 points.

(Reporting by Nevzat Devranoglu and Seda Sezer; Editing by Ruth Pitchford)