Turkey's Is Bank says activities in line with banking laws

* Is Bank shares hit by rumours of regulatory action

* Is Bank says reports incorrect (Adds Isbank, CHP, presidential spokesman, analyst comments)

ISTANBUL, Feb 23 (Reuters) - Turkey's Is Bank said on Monday that its activities were in line with the country's banking laws and dismissed reports that it could face being taken over by its regulator as "incorrect."

Shares in Is Bank had earlier fallen by more than 3 percent, with analysts saying the decline was the result of a claim by a whistleblower on Twitter that Turkey's biggest private bank could face action by the regulator.

The main Istanbul index was up 0.75 percent.

Turkey's banking watchdog did not respond to three requests from Reuters to comment.

The country's Economy Minister Nihat Zeybekci dismissed the comments about the bank.

"In Turkey the economy cannot be ruled by the comments of imaginary people. Is Bank is too important to be tarnished by fantastical comments," Zeybecki told reporters on the sidelines of a meeting in Istanbul.

Turkish presidential spokesman Ibrahim Kalin said he had no information on any action by regulatory bodies.

After the share price fall, Is Bank released a statement to the Istanbul stock exchange saying that its activities were in compliance with banking laws and called reports about its activities "incorrect."

The whistleblower, who tweets under the pseudonym Fuat Avni, said on Saturday that President Tayyip Erdogan had ordered Turkey's banking watchdog to take over Is Bank, much as it did to Bank Asya this month.

Bank Asya has been caught in a public feud between Erdogan and U.S.-based Islamic preacher Fethullah Gulen, whose sympathisers founded the bank.

Reuters was unable to reach Fuat Avni.

"There is an anonymous rumour about Is Bank on Twitter," said one banking analyst, who declined to be identified. "One of the allies of Gulen said the regulator may seize Is Bank," he said, referring to Fuat Avni.

Aydin Ayaydin, a former competition board chief and member of parliament for the opposition Republican People's Party, which owns 28 percent of the bank, according to Reuters data, told Reuters: "Speculative stories like this about Is Bank harm both the bank and the Turkish economy."

Investors in Turkey have already been unnerved in the past few months by government criticism of the central bank's interest rate policy and growing concern about weakening judicial independence, as well as by the troubles of Bank Asya.

"Against this backdrop of growing uncertainty, the markets have taken these rumours more seriously," UBS strategist Manik Narain in London said.

The Twitter account of Fuat Avni is widely watched in Turkey. It has correctly predicted some government moves, such as raids on Gulenist media outlets.

Is Bank shares fell 3.2 percent in early trading before recovering some ground. The shares closed down 2.14 percent at 6.39 lira, while the main index closed up 0.94 percent.

The lira weakened to 2.4726 against the dollar from 2.4612 on Friday. The benchmark 10-year government bond yield rose to 7.96 percent from 7.88. (Reporting by Istanbul bureau and Gulsen Solaker in Ankara; Writing by Dasha Afanasieva; Editing by David Goodman and Jane Merriman)