ISTANBUL, Nov 30 (Reuters) - Turkish bond yields hit record lows on Friday as a less-than-expected trade deficit suggested a slow recovery in the economy, fuelling hopes of policy easing by the central bank.

The trade deficit fell to $5.51 billion in October from $8.01 billion a year earlier, far below a forecast of $8.2 billion in a Reuters poll.

The deficit shrinkage indicated the current account gap is still narrowing, helping the currency to firm to 1.7862 to the dollar from 1.7871 late on Thursday. Against the euro-dollar basket, it was virtually unchanged at 2.0539.

The yield on Turkey's two-year benchmark bond closed at 5.93 percent, after hitting its all-time low of 5.89 percent after the data, from a previous close at 5.98 percent.

Istanbul's main share index closed up 0.84 percent at 73,058 points, outperforming a 0.2 percent rise in the global emerging markets index.

'The decline in the bond yields boosted the shares. Besides, recently we see that there are still inflows to Turkey even if global risk sentiment deteriorates. This shows investors are evaluating the probability of a second credit rating upgrade for Turkey,' said Ahmet Fatih Gursoy, equity specialist at Is Investment.

Fitch upgraded Turkey to investment grade early in November. However, a rival agency Moody's kept the country one notch below investment grade saying its balance of payments left it vulnerable to shocks.

(Writing by Seltem Iyigun; editing by Stephen Nisbet) Keywords: MARKETS TURKEY/CLOSE

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

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