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UPDATE 1-Turkish markets bolstered by troop deal hopes

By Mark Bentley

ISTANBUL, Feb 21 (Reuters) - Turkish markets edged up on Friday after Turkey said it may agree shortly with the United States on a multi-billion dollar aid package aimed at cushioning its fragile economy against the shock of a looming war in Iraq.

Washington wants Turkey to open its air bases and sea ports to tens of thousands of U.S. troops in return for billions of dollars in cash and loan guarantees, but Ankara wants firmer assurances on the aid and its own military's role in Iraq.

"They understand our worries, we understand theirs. A result will be reached in the coming days," Prime Minister Abdullah Gul told an Istanbul meeting.

Shares on the main Istanbul index ended up 0.73 percent at 11,754.00 points, off earlier lows, while the lira firmed to 1,622,000 to the dollar from Thursday's 1,635,000.

Investors worry a deadlock could leave Turkey's debt-ridden economy without safeguards if a war drives away tourists and slashes foreign trade, but many believe Ankara's close military ties with the U.S. make an eventual deal likely.

"There is some buying (on the stock market). The market is focused on the deal," said Hasan Mut at Park Raymond James Securities in Istanbul.

Key yields on Turkey's massive domestic debt load, swollen by financial crisis, fell to 56.61 percent from 56.69. The treasury said on Friday it would auction 371-day debt on February 25 as it works to meet its debt commitments.

Turkey has said it wants the United States to provide upwards of $30 billion in grants and loan guarantees to lessen the impact of war, but Washington says an offer of $26 billion is final, though it has said it could show flexibility on the structure of the package.

Turkey hopes some of the cash will help it extend the maturity of its domestic debt, which rose by some $3 billion to 155,400 trillion lira (around $95.6 billion) in January.

Analysts fear war may render the debt more difficult to manage.

Data released on Friday predicting a 43 percent rise in domestic motor vehicle sales during 2003 may help ease fears any conflict would threaten Turkey's recovery from the worst economic slump since 1945.

The vehicle market is expected to expand to 250,000 units in 2003 from 175,000 units last year, the automotive sector association (OSD) said.

A central bank survey predicting interest rates and inflation falling in 2003 and economic growth at 4.2 percent of gross national product (GNP), only marginally lower than earlier estimates, appeared to signal that many investors believe Turkey may emerge relatively unscathed from any conflict.

But any breakdown in negotiations with the United States would likely spark a slide in investor confidence.