Adds media report, background

ANKARA, Nov 28 (Reuters) - Turkish authorities are working to avoid damage caused by the circulation of counterfeit U.S. dollar bills, a source with knowledge of the matter said on Thursday.

As a result of the fake bills circulating, several foreign exchange offices and banks in the country are no longer accepting some U.S. dollars, the source said.

"There is no problem with the financial system, but the relevant institutions are working to protect citizens. Since the issue is counterfeiting, it falls under financial crimes," the source added.

Several banking sources have said some $50 bills and $100 bills are suspected of being counterfeit and are not currently detected by money-counting machines.

The same source said that with a system update on the money counting machines it will be possible to detect counterfeit bills, adding that the issue will be resolved as soon as possible.

Separately, a prosecutor's office in Istanbul has launched an investigation into the issue of fake dollar bills, broadcaster NTV reported.

(Reporting by Nevzat Devranoglu; Editing by Jonathan Spicer and Daren Butler)

((ezgi.erkoyun@thomsonreuters.com; +90-212-350 7051; Reuters Messaging: ezgi.erkoyun.thomsonreuters.com@reuters.net;))