LONDON, March 21 (Reuters) - A surprise bumper rate hike

by Turkey's central bank on Thursday boosted the country's

international sovereign bonds, lifted the lira off its recent

lows and bolstered banking stocks.

The central bank raised its key interest rate by 500 basis

points to 50%, citing a deteriorating inflation outlook and

pledging to keep a tight stance until a significant and

sustained drop in the trend emerged.

"It is a pleasant surprise," said Peter Kisler, EM portfolio

manager at Trium Capital in London.

"You can read into this that (Finance Minister Mehmet)

Simsek and the central bank have the capacity to be more

aggressive, upcoming election or not."

The hawkish move sparked a rally in the country's assets

with markets having expected policymakers to stand pat ahead of

a local election on March 31.

The lira firmed to 31.91 to the dollar -- its strongest

level since March 7 and its biggest daily rise since late August

-- before retracing some of its gains to 32.16 by 1154 GMT.

International dollar-denominated bonds extended their

earlier gains with the 2038 bond chalking up the biggest gains,

jumping 2.43 cents to trade at 96.1 cents on the dollar - its

highest level since early January, Tradeweb data showed.

Local government bonds also joined the rally, with the yield

on the 10-year benchmark trundling as low as 24.52%.

"Sentiment towards Turkish assets should be shored up, after

some recent nervousness driven by signs of pressure on the

currency and the central bank's FX reserves," said James Wilson,

EM sovereign strategist at ING in London.

Local equity markets sailed higher with the main index of

Turkish bank stocks jumping around 4% while the broader

Istanbul stock market climbed more than 2%.