UPDATE 1-Surprise Turkey rate hike shores up lira, boosts bonds and stocks

(Adds details and comments throughout, updates prices)

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%. (Reporting by Karin Strohecker, Canan Sevgili and Marc Jones, Editing by Jorgelina do Rosario and Alison Williams)