ISTANBUL, (Reuters) - Turkish shares fell almost five percent and the lira lost value on Wednesday, May 23, as low demand at treasury debt auctions and lack of interest from foreign investors worried jittery investors.
The main Istanbul National-100 stock index closed the day 4.68 percent down at 12,052.38.
Analysts say the index had been working within the 12,000 to 12,700 range for the past few days hoping for new capital inflows from abroad after Turkey sealed some $15.7 billion in international crisis lending, but this hadn't happened.
"It needed foreign participation and new money inflow to break the resistance. When that didn't arrive, sales came using yesterday's low auction sale as an excuse," said Ugur Yilmaz, general director of Gedik Investment.
The treasury on Tuesday borrowed only 70 percent of previously-announced targets.
Analysts believe foreign institutions are unlikely to arrive in great numbers in the short term, pointing to a lack of interest in safer government bonds.
"In a period when foreigners are not even making purchases on the bond market it cannot really be expected that they will flood to the stock exchange," said Hakan Balsizan of Alternatif Securities.
Bond yields rose more than two percentage points with yields on the busiest paper maturing on March 6, 2002 rising to 74.67 percent by Wednesday's close.
The lira also lost value on the central bank brokered spot market, trading at 1,116,000 lira to the dollar compared with 1,110,000 lira at Tuesday's close.
The government says it borrowed less than its target in Tuesday's domestic debt auction in order to avoid paying higher interest rates.
"We did not approach yesterday's auction with the idea of reaching a total at the cost of raising interest rates," Economy Minister Kemal Dervis told reporters on Wednesday.
The treasury auctioned a net total of 2,162 trillion lira ($1.5 billion) in six- and 10-month papers on Tuesday, 30 percent short of a published target of 3,100 trillion lira, but at the lowest rates seen since a February financial crisis.
The auction coincided with debt servicing of 3,499 trillion lira.
Turkey needs to borrow from domestic and international markets in order to service a heavy debt redemption schedule in May-July.
The country has since signed a $15.7 billion reform deal with the IMF and World Bank to help pull it out of a crisis that saw the lira depreciate by some 40 percent and interest rates soar into four figures.
Dervis said late Wednesday afternoon high interest rates were the biggest thorn in Turkey's side as it moves out of crisis. "We must lower interest rates," the minister said.
Analysts say it is also important that Turkey maintains political stability and takes serious steps in line with pledges to the IMF.
"There must not be any negative political developments at this time. In the economic field, concrete steps must be taken to solve problems in the banking sector as outlined in the letter of intent," said Suleyman Sabanci of Deha Securities.
Analysts say markets are nervously awaiting presidential approval of a key banking bill that will steady a wobbly sector. The bill will help to encourage mergers, raise capitalisation, and bring stiff sanctions against bankers who misuse bank funds.
Deals on the repo and overnight money markets were unchanged at 67 percent.
© 2001 Mena Report (www.menareport.com)