UPDATE 2-Turkish lira gives up gains after inflation

(Adds closing share prices)

ISTANBUL, Aug 4 (Reuters) - Turkey's lira gave up its gains at six-month highs in after-hours trading on Monday after July inflation data exceeded analysts' expectations and global markets turned sour.

The lira firmed as far as 1.1495 before closing at 1.1525 on the interbank market, but gave up gains to trade at 1.1555 after inflation data. The yield on the April 14, 2010 benchmark bond <0#TRTSYSUM=IS> fell to 18.80 percent from Friday's close of 19.01 percent.

"Inflation was worse than expected so we saw some slight softening, the Dow and S&P are also down, but I expect this softening to be short-lived," said Finansbank trader Omer Unveren.

A rally in the lira beyond the 1.1425 level would bring the currency to its strongest level since 2001, when Turkey was hit by a major financial crisis.

Expectations for more muted inflation data increased on Friday after figures showed retail prices in Istanbul dropped 1.86 percent month-on-month in July, despite large power price hikes.

The high-yielding lira's gains on Monday built on a rally last week as investors sold dollars for the Turkish currency after a top court decided not to ban the ruling AK Party, removing months of political uncertainty which has hit markets hard since March.

The Constitutional Court imposed financial penalties on the business-friendly party, which had been an accused of Islamist activities.

Turkish stocks .XU100 closed 0.64 percent higher at 43,258.37 points, outperforming their emerging market peers. The benchmark of index emerging market stocks was 1.41 percent lower .MSCIEF.