Turkish assets extend decline on worries over U.S., German economy

With uncertainty beginning to surround the U.S. Treasury's banking rescue plan, and fresh data showing Germany, Turkey's largest trade partner, fell into recession for the first time in five years in the third quarter, risk aversion dominated in the Turkish markets.

The Turkish lira traded around 1.62 to the dollar, up around 0.7 percent from Wednesday when it closed at 1.64 after suffering a 4.5 percent loss. Local investors had sold dollars to cash in on one of the lira's weakest levels since 2006, analysts said.

The main stock exchange index traded down 1.85 percent lower below the key 25,000 points. Turkish stocks have now lost 55 percent of their value since the start of 2008 -- and third quarter earnings from Turkish companies have provided little comfort.

"In the last few days a mood of panic dominated on international markets, but now this is subsiding a little. People are waiting to see what will emerge from the G20 meeting this weekend," HSBC strategist Fatih Keresteci said in a research note on Thursday.

EYES ON G20

The lira has lost approximately a third of its value against the dollar this year, and is now trading at a level -- despite a brief dip last month -- last seen in early 2006.

Leaders of the Group of 20 industrialized and emerging nations -- including Turkey -- meet this weekend in Washington.

Besides the general global economic slowdown, economists say concerns over how Turkey will secure billions of dollars of foreign financing in the credit squeeze are weighing on markets.

Investors are keen for Turkey to sign up to another IMF stand-by deal given the global financial turmoil, but analysts say the government is reluctant to commit to an agreement that would likely limit its room to spend ahead of municipal elections. Turkey's $10 billion loan deal with the IMF expired in May.

Turkish officials also may turn to the Federal Reserve to use its swap facility for emerging markets.