Markets surge after Turkish election

The lira has plunged in value since

The Turkish financial markets have given the thumbs up to the election of the Justice and Development Party (AKP) on Sunday, with stocks surging and the currency rebounding off record lows.

The AKP, a moderate-Islamic party which has never held government, won an outright majority, while the outgoing coalition of Bulent Ecevit had failed to win a single seat

AKP is ready to take responsibility to build up the political will ... to strengthen the integration of our economy with the world economy and the implementation of the economic programme

Recep Tayyip Erdogan, AKP party leader

The main share index rose 7.2% to 10,952.7, while the lira recovered about 1% to 1,669,000 to the dollar at 1035 GMT, compared with Friday's rate of 1,687,000.

The lira, which touched 1,706,000 to the dollar in July, had hit a record low of 1,737,000 in early trade.

"The knee jerk reaction was negative, but then we got some positive comments about EU enlargement and that bouyed sentiment," said economist Tim Ash from Bear Stearns in London.

Turkey was plunged into economic crisis after political in-fighting between ruling parties last year.

The lira value almost halved, inflation soared by about 80%, and millions lost their jobs, plunging Turkey into its worst recession in 50 years.

Turkey has since been locked into a $16bn (£10.7bn) International Monetary Fund (IMF) bail-out program, which demands that it cuts government spending and sell off state-owned assets.

Safeguards

AKP party leader Recep Tayyip Erdogan, who is banned from parliament for a conviction of inciting religious hatred by reading a poem, has said he will respect IMF agreements while "safeguarding national interests".

The party was set up last year by the remnants of various banned Islamist groups.

Erdogan promises to safeguard "national interests"

"The sheer size of the majority, the fact that we are in uncharted territory, is probably going to lead to some short-term defensive behaviour in the market," said Hakan Avci, strategist at Global Securities in Istanbul.

The lira fell close to a three-month low last Friday on nerves about the election.

"AKP is ready to take responsibility to build up the political will to accelerate the European Union entry process and to strengthen the integration of our economy with the world economy," Mr Erdogan told a news conference after polls closed.

His key economic adviser Ali Coskun told Reuters the AKP would stick to the IMF's programme, after suggestions before the election that it might renegotiate.

AKP party officials have visited London and other financial centres in the weeks leading up to the election to reassure investors.

Businesses lobby

The Turkish Industrialists' and Businessmen's Association (Tusiad), a leading lobby group, has urged the AKP to follow IMF's economic programme for the country.

"The programme of economic recovery... agreed with the International Monetary Fund must be continued," the group said.

"A one-party government must take the courageous decisions necessary for the economy and not go down the road of populist policies."

The lobby group also stressed the need to continue working towards joining the European Union.

"The legal and constitutional reforms necessary for the process of integration with the European Union must be pursued," Tusiad said.