(Updates with closing prices)

     By Mark Bentley

     ISTANBUL, Sept 18 (Reuters) - A measure of calm returned to Turkish markets on Tuesday when bonds and the lira recouped some of the previous day's heavy losses made on worries over last week's attacks in the United States.

     Turkey -- a NATO member -- is implementing a $15.7 billion IMF-backed crisis rescue pact that brokers say could be blown off course if conflict in the region erupts, undermining its economy even further.

     ``The news on the 'war' and from world bourses will be the determinant. The market is very weak and sensitive to any news,'' said Can Yazgan at Ata Investment in Istanbul.

     Bond yields on the benchmark paper maturing on March 6, 2002 fell more than three percentage points to 92.83 percent, while the lira strengthened to below the 1,500,000 mark against the dollar on the central bank-brokered spot market.

     The lira closed the day at 1,499,000, well above Monday's record close of 1,549,000 -- the currency set a record intraday mark of 1,550,000 to the dollar earlier that day.

     Economy Minister Kemal Dervis said at a conference in London that Turkey's ailing floating currency had undershot its real value since a February crisis that wiped more than 50 percent off its value against the greenback, and said he saw lira appreciation of at least seven percent in 2002.

     The central bank auctioned $20 million for lira at an average 1,529,000 to the dollar in the late morning, with brokers saying investors were tracking the currency's movements in the absence of any clarity both at home and abroad.

     ``Local investors are watching for small movements in the bourse, developments in American markets and foreign exchange,'' said Cem Tozge, capital markets analyst at Ata Invest.

     The main Istanbul National-100 index also steadied, though it still ended down 0.82 percent at 7,703.49 points after losses of 2.15 percent on Monday when fears over global turmoil and Turkey's crisis-hit economy deepened.

     Turkish investors were reassured by Wall Street's resumption of business on Monday, even though the Dow Jones Industrial share index fell 7.13 percent, analysts said.

     ``The fall in U.S. markets was no greater than expected,'' said Alper Tavukcu of Hak Securities.

     Analysts said the biggest concern for investors in the short term will be the ability of Turkey to roll over its huge debt burden and the impact on tourism receipts and exports.

     ``In purely sovereign terms, Turkey is the emerging market credit with the most onerous refinancing requirement in absolute terms,'' said Philip Poole of ING Barings in a research note.

     Turkey faces some 34,800 trillion lira (around $24 billion) in debt servicing this year and hopes exports and tourism will help it out of its deepest recession since 1945.

     The Treasury will not hold any debt auctions this week as it seeks to avoid high borrowing costs exacerbated by the U.S. attacks.

     The government has said it foresees no need for additional IMF financing to help handle its debt load in 2001. Dervis said on Monday that Turkey was not considering restructuring of its domestic debt in 2002.