ANKARA - The embattled Turkish lira gained a little more ground Tuesday after the Central Bank bought the note on the markets and said it would auction off dollars in a bid to support its currency hit by inflation worries.
The lira was trading at 1.63 to the dollar Tuesday, down from Monday's close of 1.67 but still some 20 percent off its value in early May.
On the second day of its direct intervention on the markets, the Central Bank bought 694 million Turkish liras (415 million dollars) in two auctions Tuesday and said it would sell a maximum of 500 million dollars at another auction later in the day.
On Monday, the bank auctioned off 500 million dollars, then sold an estimated 500 to 800 million dollars on the foreign exchange market.
Although analysts welcomed the bank's intervention as a sign of its determination to stabilise the markets, they have warned that a loss in reserves will be an inevitable.
The bank had reserves of 58.3 billion dollars on June 16.
In a bid to offset the lira's slide, the Central Bank decided at an emergency meeting Sunday to raise its key overnight borrowing rate -- for the second time in a month -- by 225 base points from 15 to 17.25 percent.
It also announced a more interventionist policy, holding dollar auctions when needed to address a liquidity crunch in foreign exchange markets.
Turkish markets have been in turmoil since May as foreign investors pulled out amid a global sell-off in emerging markets, political friction at home and higher-than-expected inflation figures.
Annual inflation jumped to 9.86 percent in May, stoking concerns over the government's year-end target of five percent and causing the Central Bank to raise its key overnight borrowing rate from 13.25 percent to 15.0 percent on June 8.
Economy Minister Ali Babacan said last week that inflation was likely to surpass the year-end target, adding that the government has no plans to revise its objectives.
A Central Bank survey earlier this month forecast year-end inflation at 8.82 percent.
Turkey has staged a spectacular recovery from two major crises in 1999 and 2001 that brought the country to the brink of financial collapse and led it to seek aid from the International Monetary Fund (IMF).
Under a three-year stand-by programme backed by a 10-billion-dollar IMF loan, the government aims to bring inflation down to 4.0 percent in 2007 and 2008.

06/27/2006 13:17 GMT