October 8, 2019 / 9:33 AM / 6 months ago

UPDATE 3-Turkish lira trims losses but worries over Syria persist

(Adds gains after Trump tweet, updates prices)

By Ceyda Caglayan and Nevzat Devranoglu

ISTANBUL, Oct 8 (Reuters) - Turkey's lira recovered on Tuesday after sinking to its weakest point in more than a month, helped by upbeat comments from President Donald Trump, but investors still worried about the fallout from Ankara's planned incursion in northeast Syria.

Less than 24 hours after warning he could "obliterate" Turkey's economy if it went too far in its Syria operation, Trump tweeted on Tuesday that Ankara was a "big trading partner" of the United States and had been "good to deal with".

The lira, which lost over 2% of its value on Monday to close at 5.8370, firmed to 5.795 against the U.S. dollar by 1249 GMT, after slipping to 5.8465 earlier in the day.

Trump had said on Monday that he would "totally destroy and obliterate" Turkey's economy if it took action in Syria that he deemed "off limits," after his decision on Sunday to pull 50 American special forces troops from northeastern Syria.

The leader of the Turkish opposition Iyi Party, Meral Aksener, called Trump's threat a "diplomatic catastrophe."

Turkey's main share index, BIST100, was down 0.63% and the banking index declined 0.33% - both recovering from sharper losses earlier in the day.

The shares of cement companies that have production plants close to Syrian border, such as Mardin Cimento and Adana Cimento, rose two days straight on expectations of reconstruction of the region.

The extensive area of Ankara's planned incursion into Syria could lead to months of military activity that raises concern in the markets, said one bank treasury trader. Trump's threats also kept the lira under pressure, he said.

Currency depreciation could lead to expectations of a less- aggressive interest rate cut when the central bank meets later this month, the trader added.

The U.S. withdrawal will leave Kurdish-led forces in Syria who have long been allied with Washington vulnerable to the planned incursion by the Turkish military, which brands them terrorists.

The Turkish defence ministry said in a Twitter post late on Monday that all preparations for a possible military operation into northeastern Syria had been completed.

Tensions between the United States and Turkey have been simmering in recent months over issues including Ankara's purchase of Russian missile defence systems and disagreements over policy in Syria.

Turkey's sovereign dollar bonds came under fresh pressure, with some longer-dated issues slipping to two-week lows. Bonds maturing in 2030 and beyond lost nearly 1 cent in a second day of decline.

In a currency crisis last year, the lira lost nearly 30% of its value against the dollar, partly over concern about worsening relations between Ankara and Washington. (Writing by Daren Butler and Dominic Evans Editing by Mark Heinrich)

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