The Bush administration's decision to include about one billion dollars in aid to Turkey as part of its Iraq war budget has boosted investor confidence, perking up financial markets in Istanbul.

The administration request steadied financial markets that had grown increasingly worried that Turkey would default on its huge foreign debt. Share prices in Istanbul climbed two and a half percent Wednesday while the Turkish currency, the lira, gained one percent.

Economists in Istanbul tell Bloomberg news that, if the grant is approved by Congress, it would close the government's financing gap and boost badly shaken investor confidence.

Ankara's credibility has been damaged by perceptions that it mismanaged negotiations with Washington in which the Americans offered much more generous aid in return for the use of Turkish bases in the war with Iraq. The failed negotiations led the Americans to abandon plans for a second front in northern Iraq, and anti-Turkey sentiment is running high in Washington. Some analysts say the Turkish aid request may not be approved.

The United States has long been Turkey's principal advocate with the International Monetary Fund (IMF) and it has championed the cause of Turkish membership in the European Union. The IMF has a big lending program with Turkey, but it has been holding off on providing more money until the new government that came to power last November makes good on its promise of fiscal restraint.

Turkey wants compensation for revenue lost from the disruption of normal business relations with Iraq. The Europeans and Americans are insisting that the Turks not send troops into northern Iraq, a move that would inflame ethnic tensions in Iraqi Kurdistan.