UPDATE 1-Islamic bank Kuveyt Turk postpones IPO - sources

(Adds background)

By Emma Ross-Thomas

ISTANBUL, Feb 1 (Reuters) - An initial public offering for Turkey-based Islamic lender Kuveyt Turk has been postponed indefinitely due to poor market conditions, two sources familiar with the deal told Reuters on Friday.

No one was available to comment at Kuveyt Turk, Turkey's third-largest Islamic lender, which planned to list an 18 percent stake and which is majority-owned by Kuwait Finance House (KFIN.KW: Quote, Profile, Research).

As global stocks have fallen amid fears of recession in the United States and steep credit losses at financial institutions, Istanbul's main share index .XU100 has fallen 23 percent this year.

Turkish shares have fared worse than the MSCI emerging stocks index .MSCIEF, which has lost just 13 percent this year, after outperforming their developing country peers last year.

Islamic lending -- which in line with Islamic law does not pay or charge interest but operates by profit-sharing -- is growing fast from a low base in mainly Muslim but officially secular Turkey.

Kuveyt Turk, whose shareholders also include the Islamic Development Bank, had assets of 3.5 billion lira ($3 billion) as at last September. Its nine-month profit rose 150 percent to 55.4 million lira, according to data from the Profit-Sharing Banks Association.

Kuveyt Turk was set to follow rivals Bank Asya (ASYAB.IS: Quote, Profile, Research) and Albaraka Turk (ALBRK.IS: Quote, Profile, Research), which have also listed on the stock market in fast-growing Turkey in the last two years. Shares in Albaraka have risen around 20 percent since their June 2007 offering. (Editing by Will Waterman)