ISTANBUL- The Turkish lira on Monday clawed back some of its steep losses from Friday, its worst day since the currency crisis took hold in August, after the central bank and government issued a series of promises and warnings to stem any further weakness. At 0910 GMT, the lira stood at 5.64 against the U.S. dollar, more than 2 percent stronger than Friday's close. The lira had weakened to as much as 5.8490 on Friday before rebounding to settle at 5.7625, still its worst closing value since October. The central bank vowed on Monday to use all its tools to stabilize prices and it did not open foreign-exchange repo or depo auctions, seen as "back door" tightening measures analysts said provided some measure of relief. On the weekend, President Tayyip Erdogan warned that bankers would pay "a very heavy price" if they buy foreign currencies expecting the lira to fall, while financial regulators opened three separate probes into JPMorgan and other banks for providing misinformation and stoking volatility. The lira's apparent fragility had echoes of last year's full blown currency crisis that eventually tipped the Turkey's economy into recession, and raised concerns that Turks were buying more foreign cash as ties with Washington deteriorated. The lira still remains "extremely vulnerable" to shocks and investors are "a bit jittery" despite Monday's gains, said Jason Tuvey, senior emerging markets economist at Capital Economics. "Geopolitical concerns and any comments from Erdogan regarding monetary policy, if he tries to say the central bank should reverse course, then the lira may come under pressure again," he said. Turkey's main BIST 100 share index slid 0.38 percent, while the banks sector fell 3.60 percent, after tumbling Friday to its lowest close since January. It was dragged lower in part by a global selloff Monday in emerging-market stocks over growing fears of a possible U.S. recession. UNORTHODOX RESPONSES Overhanging the market volatility are March 31 local elections for which Erdogan has been campaigning hard for his AK Party. Last year, the Turkish government cast the crisis - in which the lira lost some 30 percent against the dollar - as an economic attack by foreign powers and encouraged Turks to buy lira to stop the weakening. At an election rally on Sunday, Erdogan said "some people" had begun provoking Turkey and were attempting to make the lira decline against foreign currencies. But central bank data suggests Turks may be losing confidence in the lira and helped spark last week's selloff. Forex deposits and funds including precious metals held by Turkish locals hit a record high in the week to March 15. Data also showed central bank forex reserves fell sharply in the last two weeks, adding to concerns on Friday. The central bank said the fall was due to foreign debt payment and forex sales to energy-importing firms. urn:newsml:reuters.com:*:nA4N1WW02G The two investigations into JPMorgan were around complaints that a research report it published caused speculation in the Istanbul bourse and hurt the reputation of banks, according to Turkey's banking and market regulators. However investors want information and trading suggestions, Tuvey said. "If political leaders are going to try to put pressure on them to not to do that then they'd probably just change their minds about investing in the country." On Monday, Governor Murat Cetinkaya was quoted as saying the central bank's main policy is to keep its reserves strong. Among its responses, the central bank raised the total swap sale limit to 20 percent from 10 percent it set last October. Traders said the pausing of repo auctions will raise the average cost of funding by a minimum of 150 basis points from 24 percent currently. The central bank raised its key policy rate to 24 percent in September and has left it there. But its use of unorthodox moves has raised concerns that it wants to avoid a clash with Erdogan, who has described interest rates as the mother and father of evil. "The fact that it has resorted to back door tightening (with the) repo auction suggests there is some political pressure on the central bank from Erdogan and they are trying to evade that," Tuvey said. (Reporting by Daren Butler and Ali Kucukgocmen; Editing by Jonathan Spicer) ((daren.butler@tr.com; +90-212-350 7053; Reuters Messaging: daren.butler.thomsonreuters.com@reuters.net))
