Bloomberg News

Lira Heads for Biggest Drop as Greek Talks Erode Risk Appetite

February 07, 2012

Feb. 6 (Bloomberg) -- The lira headed for its biggest fall this year on weaker investor sentiment as the debt-swap deal between Greece and its creditors remains elusive.

The Turkish currency depreciated 0.8 percent at 1.7668 per dollar, paring this year’s gain to 7 percent at 11:26 a.m. in Istanbul. The decline today is the biggest since Dec. 28. Yields on the benchmark two-year bond fell nine basis points, or 0.09 percentage point, to 9.38 percent, a Turk Ekonomi Bankasi index of the securities showed.

Euro-area finance chiefs told Greek Prime Minister Lucas Papademos an increase in the 130 billion-euro ($170 billion) aid package wasn’t forthcoming if they fail to extend spending cuts. The Greek leaders are due to meet again today at about midday to work on the detail of an agreement after setting a framework for bank recapitalizations, ensuring the viability of pension funds and for measures to reduce wage and non-wage costs to boost competitiveness.

“A lot of people expected a deal would be reached by this weekend and these expectations have been battered again,” Thu Lan Nguyen, a currency strategist at Commerzbank AG, said in e- mailed comments. “The risk appetite is waning which is weighing on the lira.”

The lira slumped 18 percent in the biggest decline worldwide and yields soared 390 basis points last year as a widening current-account deficit and worries about the European debt crisis and Middle East revolts shook investor confidence in Turkey.

Turkey’s currency has strengthened this year on account of a tighter monetary policy. The lira was bid higher in January after the U.S. Federal Reserve Chairman Ben S. Bernanke said interest rates will remain exceptionally low for a longer period and hinted at the third round of quantitative easing.

--Editors: Ash Kumar, Linda Shen

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

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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