By Seltem Iyigun

ISTANBUL, Nov 23 (Reuters) - Turkish bond yields hovered close to record lows on Friday, benefiting from falls in short-term yields due to hints that the central bank may press on with further cuts in official rates next month.

The lira weakened and shares were trading flat.

The yield on the two-year benchmark bond stood at 6.20 percent, unchanged from its Thursday close. It hit a record low of 6.16 percent on Thursday.

'The central bank's hint ... that it may consider lowering the overnight interest rate and/or policy rate continues to support the front end of the yield curve,' wrote analysts at Is Investment.

'Average funding rate is at 5.68 percent, which is 7 basis points lower than the central bank's official policy rate.'

With growth slowing, the central bank has been easing monetary conditions since the second half of the year, lowering the highest of its main official rates and the cost of the funds it provides to banks through one-week and one-month repo operations.

The average funding rate has fallen from close to 11 percent in May. The bank cut the overnight lending rate for a third consecutive month, to 9 percent, at its November policy meeting on Tuesday.

The bank also said it may gradually cut its overnight borrowing rate or policy rate - respectively 5 and 5.75 percent currently - if the lira firms excessively.

Governor Erdem Basci has said the bank would act swiftly if the real exchange rate reached 120-125 on the bank's index, and would use all policy tools available if it rose above 130. As of October, the index stood at 117.4.

The lira has broadly been a touch weaker since the bank's meeting on Tuesday and it stood at 1.7988 to the dollar in Friday trade, from 1.7977 late on Thursday. Against the euro-dollar basket, it had eased to 2.0580 from 2.0566.

'The global risk sentiment will continue to be the main driving force but rate-cut expectations seems to be strengthening and may provoke further lira underperformance,' wrote Erkin Isik, strategist at TEB.

Istanbul's main share index was up 0.27 percent at 70,091 points, underperforming a rise of 0.46 percent in the global emerging markets index.

(Writing by Seltem Iyigun; editing by Patrick Graham) Keywords: MARKETS TURKEY/

(seltem.iyigun@thomsonreuters.com)(+90 212 350 70 62)(Reuters Messaging: seltem.iyigun.thomsonreuters.com@reuters.net)

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