Turkey's lira weaker, shares at 2-yr low on U.S. ties concern


ISTANBUL, May 22 (Reuters) - Turkey's lira slid nearly 1% on Wednesday and shares hit a two-year low on investor concerns about strains with Washington over Ankara's push to purchase a Russian missile system and the central bank's reversal of recent monetary tightening.

The lira weakened as far as 6.1105 against the dollar from Tuesday's close of 6.0585. At 1301 GMT, it stood at 6.0960. The BIST 100 share index .XU100 was down 1.45% to its lowest since January 2017.

Defence Minister Hulusi Akar said late on Tuesday that Turkey was preparing for potential U.S. sanctions over its purchase of Russian S-400 missile defence systems, even while he said there was some improvement in talks with the United States over buying F-35 fighter jets.

"We are seeing a negative movement specific to the lira today," one banker said.

"There is no negative mood abroad for now. However, with the central bank opening a repo auction yesterday and the news flow regarding the S-400s, the perception of the lira has been damaged again."

The lira has fallen nearly 13% so far this year partly over concerns about relations with the United States. It plunged nearly 30% last year amid a bruising row with Washington over the trial in Turkey of an evangelical pastor who later returned to the United States.

The central bank opened a repo auction on Tuesday for the first time in nearly two weeks, a move that will gradually bring down its average cost of funding to the policy rate of 24% from 25.5%. The initial suspension of the repo auction was aimed at supporting the lira as it declined sharply in previous weeks.

Authorities have also taken steps that economists described as "unorthodox", including state banks selling forex to prop up the lira.

The BDDK banking watchdog on Monday imposed a one-day settlement delay on individuals' purchase of more than $100,000 in foreign exchange, a move that could lead to concerns about potential capital controls as Ankara looks to support the ailing lira.

Ankara also raised a tax on some foreign exchange sales to 0.1% from zero last week to discourage Turks converting savings to foreign currencies.

Is Bank ISCTR.IS chief executive Adnan Bali said on Wednesday Turkey needs to stick to free market rules until the end, warning that imposing controls would harm economic welfare.

(Reporting by Ali Kucukgocmen Editing by Gareth Jones)

((ali.kucukgocmen@thomsonreuters.com , @alikucukgocmen; +902123507067; Reuters Messaging: Reuters Messaging: ali.kucukgocmen.thomsonreuters.com@reuters.net))

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