Turkey will launch its first diamond market this month, aiming to become a regional trading hub for the precious stone, a senior industry official said, Reuters reported.

"The `diamonds and precious stones market` will start to operate soon, hopefully in the coming few weeks," Oguzhan Aloglu, vice president of the Istanbul Gold Exchange told Reuters this week.

Aloglu said the market will operate within the Gold Exchange and it will allow participants to physically trade both rough and polished diamonds. The aim is to fulfill and boost increasing domestic demand from Turkey`s young generation and attract customers from the Middle East, particularly in Dubai and Israel.

"In Turkey, the consumption of diamonds has risen around 25% annually. The young generation increasingly prefers diamonds to traditional jewelry," Aloglu said.

Gold jewelry is a traditional gift at Turkish weddings but as the record gold price increased the cost of jewelry, customers are seeking added value by including diamonds. Sales of rough diamonds in Turkey stand around $600 million while the consumption of diamond jewelry is around $1.2 billion, according to Aloglu.

Turkey buys diamonds from Belgium, Dubai and Israel and most commonly in polished or semi-polished form.

"With the introduction of this market the number of diamond processing companies and merchants will increase and the industry will rapidly grow," Aloglu said.

But he did not give a revenue target for this market. Meanwhile, a 20% import tax, also known as a special consumption tax, on diamond imports could be an obstacle.

"We are working to find a way to scrap the tax," he told Reuters.

The Exchange in August became a member of the Kimberley Process certification scheme.

Aloglu said they were also working on a project to launch a foreign exchange market and aimed to see some tangible progress on this objective in 2008.