UPDATE 5-Turk assets fall after cbank revises inflation goal

(Adds closing prices)

By Thomas Grove

ISTANBUL, June 4 (Reuters) - The Turkish lira lost 1.5 percent on Wednesday and bond yields rose to their highest level in more than a year after the Central Bank raised its inflation targets, spurring credibility concerns among investors.

The lira IYIX= closed at 1.2400 against the dollar, easing from 1.2220 a day earlier, but in Thursday-dated trade it rebounded partially to 1.2365 by 1350 GMT.

After annual May inflation came in at 10.74 percent on Tuesday the Central Bank proposed raising its inflation targets for the next three years, including almost doubling next year's target to 7.5 percent, a plan the government accepted.

Central bank governor Durmus Yilmaz then told Reuters he saw inflation rising in the summer months, but said the bank would try to bring inflation down to single digits by the year-end.

"There is a general credibility problem at the bank and people are worrying that the comments show that (the bank) is nervous, so I think they will have to hike interest rates more than they thought," said Ahmet Turan, head of forex at Fortis Bank in Istanbul.

The yield on the Jan. 13, 2010 benchmark bond <0#TRTSYSUM=IS> rose as high as 20.44 percent -- its highest since January 2007 -- compared to a previous average closing level of 20.09 percent. In Thursday-dated trade it stood at 20.32 percent.

Some economists questioned the decision to change the inflation targets, although many stuck to their forecasts for a 50 basis point rate hike this month. The bank said that changing the targets did not mean looser policy.