* Kurdish PKK militants declared ceasefire last month
* Moody's says peace would boost investor confidence
ISTANBUL, April 11 (Reuters) - Ratings agency Moody's said on Thursday that Turkey's progress towards peace with Kurdish militants was good for its credit rating, which it currently has just below investment grade.
The Kurdistan Workers Party (PKK) declared a ceasefire with Turkey last month in response to a call from its jailed leader Abdullah Ocalan after months of talks to halt a conflict which began in 1984.
Moody's, which rates Turkey at Ba1 with a positive outlook, said the government's agreement to form a parliamentary investigative commission to evaluate the process was a "visible and credit-positive step" in its progress toward peace.
"The conflict in the country's southeast has been a longstanding source of political uncertainty constraining Turkey's creditworthiness," Moody's said in its CreditOutlook publication.
The ceasefire and proposed establishment of a parliamentary commission were the strongest signals to date that peace talks were building momentum, it said.
"The prospect of peace promises to boost investor confidence and improve southeastern Turkey's attractiveness as a destination for foreign direct investment," Moody's said.
In January, Moody's said Turkey needed to improve its resilience to external shocks by narrowing its current account deficit or boosting foreign reserves before it would consider upgrading the country to investment grade.
Fitch upgraded Turkey to investment grade in November. It needs one of the two other major ratings agencies to follow suit for it to join benchmark investment grade bond indexes, a status many funds require before investing in a country.
More than 40,000 people have been killed since the PKK took up arms with the aim of carving out an independent state in southeast Turkey. It subsequently moderated its goal to autonomy and boosted rights for Kurds. (Writing by Daren Butler; Editing by Robin Pomeroy)