The Turkish lira firmed to below 5.9 to the dollar and shares rallied 3% on Thursday as the United States and Iran backed away from further conflict, lowering tensions in the Middle East and triggering a recovery in market risk appetite.
The lira stood at 5.8890 at 0912 GMT, firming to below 5.9 for the first time since Dec. 18. It had weakened to a seven-month peak of 5.9885 early on Wednesday when Iran fired missiles at US-led forces in Iraq.
The main BIST 100 share index rose 3.24%, with the banking index jumping more than 5%.
The yield on the benchmark 10-year bond, which had stood at 21% in May, was at 11.92% on Thursday, down from a spot close of 12.16% on Wednesday.
The lira weakened 11% last year, in part due to Turkey's military incursion in Syria, bringing its two-year losses to 36%. Traders said on Monday state banks had been selling dollars to support the currency through the market turbulence.
After the strikes caused no casualties, President Donald Trump stepped back from new military action but he told Iran he would tighten already crippling US sanctions.
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