Turkish Lira Falls to Two-Week Low Versus Dollar as Stocks Drop

The Turkish lira fell to a two-week low against the dollar as a decline in stocks prompted a sell-off in higher-yielding assets funding by cheap loans from Japan.

The lira was the second-worst performer today of the 11 emerging-market currencies tracked by Bloomberg in Europe, Africa and the Middle East. Turkey's benchmark ISE National 100 stock index slipped by the most in almost three weeks and the NTX Index of shares in central and eastern Europe's 30 largest companies declined to a month-low.

``We continue to see weakness in the lira sweeping through as confidence in global markets continues to erode,'' London- based analysts led by Elisabeth Gruie at BNP Paribas SA wrote in a note to clients.

Against the dollar, the lira weakened to 1.1854 by 12:42 p.m. in Istanbul, from 1.1727 late yesterday.

The lira is a favorite purchase in the so-called carry trade because of Turkey's interest rate of 16.75 percent, the highest in Europe. At 0.5 percent, Japan's in the lowest main lending rate among industrialized countries.

Investors use cheap loans to buy currencies, such as the lira, they can lend out for a higher return. They earn the spread between the borrowing and lending rates, taking the risk currency moves will erase their profit.

Turkish government bonds tumbled by the most in a week today, according to an ABN Amro Holding NV index of yields. The index declined for the sixth day in seven, falling more than 1 percent.

In other trading, the Czech koruna rose to 26.881 per euro, from 26.970 yesterday. It also advanced as much as 0.6 percent to a record against the dollar, and recently traded at 18.334, from 18.425 on Nov. 7. The Prague-based statistics office said consumer prices grew an annual 4 percent in October, the fastest rate since January 2002.
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