Lira Weakens First Day in 3 as Fitch Warns Turkey Rating at Risk

The Turkish lira declined for the first time in three days and bond risk jumped the most in two weeks after Fitch Ratings said a lengthy period of social unrest could put the nation’s investment-grade status at risk.

The lira slid 0.4 percent to 1.9497 per dollar at 12:17 p.m. in Istanbul, after gaining as much as 0.3 percent. The costs to protect against default on Turkish debt climbed 17 basis points, or 0.17 percentage point, to 220. The yield on two-year notes rose 29 basis points to 8.89 percent.

Fitch, which raised Turkey to investment grade in November, said “prolonged social unrest, poorly handled, could deter tourism, exacerbate short-term capital outflows, drive-up inflation and damage economic growth, potentially putting Turkey’s sovereign rating at risk.” Yields rose as investors weighed prospects for scaling back U.S. stimulus before the Federal Reserve releases minutes of its June meeting today.

The Fitch statement “is making an impact” on the market, Burcin Metin, head of currency trading at ING Bank AS, wrote in e-mailed comments. “Emerging market positions are getting closed” before the release of Fed minutes, he said.

The two-year yield has climbed 208 basis points since the Fed’s last meeting ended on June 19, after which Chairman Ben S. Bernanke said policy makers may taper their $85 billion in monthly bond purchases this year should risks to the U.S. economy abate. Minutes of the last meeting will be released at 2 p.m. Washington time. Bernanke is scheduled to speak later on economic policy at a conference in Boston.

“Investors do not want to take risks before seeing the Fed minutes this evening,” Tufan Comert, a strategist at Garanti Securities in Istanbul, wrote in e-mailed comments.

Turkey’s central bank sold $50 million for liras today and refrained from lending at its lowest lending rate of 4.5 percent for a third day. The central bank has auctioned $4.95 billion for liras since June 11 to support the currency, which reached a record low of 1.9740 per dollar on July 8.

To contact the reporter on this story: Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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