The lira lost earlier gains, and eased to 1.6420 by 1220 GMT, from a previous interbank close of 1.6382. The lira touched a 26-month low on Monday.

The opposition Republican People's Party (CHP), which won 135 seats in the June 12 vote, took its decision after a court rejected an appeal for the release of two of its candidates.

"The lira weakened after the CHP decision as it will increase political uncertainty, but the reaction in the market will be limited," said Tufan Comert, a strategist at Garanti Securities.

The pro-Kurdish Peace and Democracy Party (BDP), which won 36 seats in the 550-seat legislature, has said it will boycott parliament after the Election Commission disqualified one of its candidates. Courts have barred the release of five other BDP candidates, who are being held under detention while on trial for links to Kurdish militants.

Taking CHP and BDP together, more than 30 percent of candidates elected in the June 12 vote will be boycotting the swearing in.

Turkey's election yielded what investors initially called an "ideal scenario", with Erdogan's AK Party retaining power but falling four seats short of the number needed to call a referendum to change the constitution.

Otherwise emerging market assets steadied as global risk aversion receded on a French plan for banks to roll over some Greek debt, easing pressure on Athens and helping it to avoid outright default.

Turkey's benchmark Feb. 20, 2013 bond yield rose to 9.19 percent from 9.17 percent on Monday.

The main Istanbul share index was up 0.9 percent to 62,519 points, outperforming a flat emerging markets benchmark index .

An upgrade of Turkish equities to "neutral" from "underweight" by JPMorgan, due to lower oil prices and reversing the bank's downgrade last week, gave support.

"While we try to avoid changing weights too often ... we think the change in the oil price forecast is big enough to change our minds," the bank said.

A lower oil price would ease inflation and reduce the current account deficit as a percentage of Turkey's GDP. JPMorgan said another positive for Turkish equities was the level of foreign ownership, which touched a five-year low last week, suggesting this trend was due to turn.

Shares of automaker Karsan gained 1.23 percent to 1.64 lira after the company struck a deal with Korea's Hyundai Motor to jointly produce commercial vehicles in Turkey.

Copyright Reuters, 2011