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Lira Drops for 2nd Day as ECB May Not Take Losses on Greek Debt

The Turkish lira weakened for a second day as risk appetite decreased after reports the European Central Bank may not take losses on its Greek debt holdings.

The lira declined 0.4 percent to 1.8272 per dollar at 6:29 p.m. in Istanbul, paring this year’s losses to 3.5 percent and heading for the biggest depreciation in almost two weeks. Yields on two-year lira-denominated bonds increased three basis points, or 0.03 percentage point, to 10.37 percent.

A senior member of Chancellor Angela Merkel’s government rejected suggestions that the ECB take losses on its Greek debt holdings, backing the bank in a dispute with the International Monetary Fund.

“Today risk is not trading well compared to the start of this week,” Sukru Haskan, a currency trader at Barclays Bank Plc in London, said in e-mailed comments. “News reports coming out today are all risk negative.”

Turkey’s central bank has terminated daily sales of $50 million, effective today, after having spent at least $15 billion from its reserves to stem the lira’s decline, which contributed to a jump in consumer price inflation to its highest in three years at 10.5 percent in December.

Turkish yields soared 390 basis points last year, the most since 2006, as the lira weakened 18 percent against the dollar in the biggest depreciation worldwide and a widening current-account deficit hurt investor confidence in the nation’s financial stability.

The central bank provided 6 billion liras ($3.2 billion) in its one-week repo funding today. It kept its one-week repo rate at a record low of 5.75 percent yesterday.

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