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Lira Weakens as Bank Increases Funding, Europe’s Debt Woes

The lira weakened, trimming its monthly advance, on increased funding by the central bank and concern Europe’s debt-crisis woes are worsening.

The Turkish currency depreciated 0.2 percent to 1.7949 per dollar, reducing its gain this month to 1.3 percent, according to data compiled by Bloomberg. Yields on two-year benchmark bonds rose one basis point to 7.53 percent.

Turkey’s central bank lent 3.5 billion liras ($2 billion) in its daily repurchase agreements auction today at 5.75 percent, the benchmark policy rate, compared with 2 billion liras a week ago and 2 billion liras yesterday. The bank varies lenders’ borrowing costs daily, providing liquidity within its policy rate and the overnight lending rate of 10 percent.

“The central bank leaves lots of liquidity to the market today,” Luis Costa, an emerging-market currency strategist at Citigroup Inc in London, said in an e-mailed report today, citing about 4 billion liras of extra liquidity provided by the central bank. “We are tactically negative on the lira.”

Spanish bond yields surged the most this month as a second night of violent protests loomed amid sparring over the police response to clashes in Madrid. Prime Minister Mariano Rajoy’s efforts to restore investor confidence suffered a new setback yesterday when Catalan President Artur Mas called early elections.

The European Stability Mechanism may have as little as 400 billion euros ($514 billion) remaining after Spain’s bank bailout, said Klaus Regling, head of the euro area’s rescue funds.

“We had some overnight news reports concerning the ESM and its ability to directly recapitalize eurozone banks, which seems to be at risk,” Thu Lan Nguyen, a currency strategist at Commerzbank, said in e-mailed comments. “Markets seem to have switched into risk-off mode today.”

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