Lira Gains With Turkish Stocks on Optimism Kurds Ready for Talks

  • Odds for Fed to hold rates boosts stocks from 17-month low
  • Equities surge most among 93 global benchmark gauges

The lira gained and Turkish stocks rallied the most worldwide after reports Kurdish separatists are ready for talks with the government eased concern that violence will worsen.

The currency, supported by speculation the Federal Reserve will hold off on raising interest rates this week, advanced 1 percent to 3.0285 per dollar at 5:42 p.m. in Istanbul after touching an all-time low of 3.0695 on Monday. The Borsa Istanbul 100 Index of stocks increased 2.6 percent from a 17-month low. The autonomy-seeking Kurdish PKK is ready for talks with the government observed by intermediaries, Dogan News Agency reported, citing an interview with key PKK commander Murat Karasu aired on Med Nuce TV.

The underperformance of Turkish assets recently is due to "terrorism" so the statement "has created a perception that this might come to an end," Baki Atilal, the head of research at Turkish Yatirim in Istanbul, said by phone. This is "allowing the market to breathe again," he said.

The lira has fallen more than any emerging-market currency apart from Brazil’s real in the past month, while its local-currency bonds have fallen the most among peers as a deteriorating national-security situation, political instability and the prospect of higher U.S. borrowing costs led investors to flee. The currency’s 14-day relative-strength index climbed above 30 for the first time this month. Trading below this threshold signals to some technical analysts that a security has fallen too far.

In the most recent bout of unrest, militants attacked security forces in the southeastern Turkish city of Sirnak early Sunday, killing two and wounding five, according to a report by state-run Anadolu Agency.

Banks Rebound

An 11-member gauge tracking Turkish banks surged 4.2 percent on Tuesday after a 29 percent slide this year through yesterday dragged its average price-to-book ratio to 0.84, near the cheapest since March 2009, data compiled by Bloomberg show.

Yields 10-year government bonds dropped 10 basis points to 10.75 percent. Credit default swaps, contracts insuring against the risk of debt defaults, fell to 285 basis points.

“Investors are covering shorts ahead of the Fed meeting on Thursday in case the bank doesn’t hike” rates, Kerem Baykal, a fund manager at Istanbul-based Ak Portfoy, said by e-mail. “There is going to be bottom fishing here as well,” he said, referring to bank stocks.

Odds that the Fed will raise borrowing costs this week are at 30 percent, down from more than 50 percent before China’s yuan devaluation last month. Policy makers will begin their two-day meeting on borrowing costs tomorrow.

Unemployment in Turkey rose to 9.6 percent in June, according to data today, surpassing the median estimate of 9.2 percent in a Bloomberg survey.

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