(Adds oil price rise, analyst comment) By Zerin Elci ANKARA, June 6 (Reuters) - Turkey denied a report on Wednesday it had launched a major incursion into northern Iraq to crush Kurdish rebels, but a military source said troops had conducted a limited raid across the mountainous border. Rumours of an invasion have rattled financial markets amid growing Turkish anger over the activity of Turkish Kurdish rebels using the mountains of northern Iraq as a refuge. Oil prices rose above $71 a barrel. "The Turkey thing popped us up," said Phil Flynn, analyst at Alaron Trading in Chicago. The U.S. government has urged Ankara to be cautious, fearing conflict in what has been one of the most stable areas of Iraq. "This cannot be called a cross-border operation, it is a limited operation," said the Turkish military source. He did not say how many troops were involved in the raid. The source said it was not unusual for troops to make "hot pursuit" raids into Iraq, where an estimated 4,000 rebels of the outlawed Kurdistan Workers Party (PKK) are said to be hiding. Earlier, the DEBKAfile Web site said 50,000 men had been dispatched as the "first wave" of an invading force. Ankara described the report as "disinformation". In Washington, U.S. Army Brigadier General Perry Wiggins of the Pentagon's joint staff told a news conference: "We have no indications or no reports that the Turks have conducted a cross-border operation into Iraq." Jabar Yawir, deputy minister for Peshmerga Affairs in Kurdistan, said: "This afternoon 10 Turkish helicopters landed in a village in Mazouri, which is ... 3 km (2 miles) inside the Iraqi border. They landed with around 150 Turkish special forces." "After two hours they left and there were no confrontations with the PKK," he told Reuters. He said the village was in a PKK-controlled area. In Baghdad, Iraq's Foreign Minister Hoshiyar Zebari said there was no evidence of a military incursion. Turkey's Foreign Minister Abdullah Gul told reporters: "There is no incursion into any other country at the moment." PKK military commander Bahouz Ardal said the reports had been planted to test public reaction to any such a move. "These reports are a test balloon from the Turkish army ... to calm internal Turkish opinion, which is expecting a move against the PKK, and test the reaction of the United States, Iraq and Kurdish parties and the PKK," he said by telephone. JITTERS The Turkish army has said its big buildup of troops and tanks in its southeast region is a routine seasonal operation intended to combat PKK rebels inside Turkey or trying to enter. Turkey's parliament, now in recess ahead of July general elections, would have to reconvene to authorise any serious military operation in Iraq. Asked if the Foreign Ministry was readying documents for such a move, spokesman Levent Bilman told journalists, before the incursion reports: "At this time there is no work on such an authorisation, but Turkey is ready for anything at any time." The reports sparked jitters among foreign investors who fear any Turkish military action could harm the country's booming economy and its ties with Washington, a NATO ally. The lira currency fell against the dollar. Turkish debt also suffered. The head of the powerful General Staff, Yasar Buyukanit, called on the government in April to authorise an incursion to crush rebels. Some 30,000 people have been killed in the PKK's separatist campaign since it began in 1984. Turkey's debate about how to tackle the PKK and northern Iraq is playing out against the backdrop of a stand-off between the Islamist-rooted government, seeking re-election, and a secular elite, including the army generals, keen to stop it. Underlining the security problems in southeast Turkey, officials said two villagers died on Wednesday when they trod on a landmine laid by the PKK in Sirnak province. Separately, a PKK rebel was killed in a firefight with troops in Bitlis province. On Monday, seven paramilitary police were killed in Tunceli province in eastern Turkey when rebels attacked their headquarters in the most deadly strike in about a year. (Additional reporting by Daren Butler in Istanbul)
