Turkish stocks slumped, led by financials, on fears of US bank nationalisations, while the lira and bond yields fell on Friday after a surprise 150 basis point rate cut by the central bank. The main Istanbul stock exchange index declined 3.52 percent to 23,579.48, in line with the MSCI index of emerging market stocks, which was 3.44 percent weaker.
Concern that Citigroup, which owns 20 percent of Turkish lender Akbank, and Bank of America could be taken over by the US government drove stocks lower world-wide.
"The news that Bank of America and Citibank could be nationalised is pushing US futures lower and affecting the Istanbul Stock Exchange," said a portfolio manager on condition his name not be used.
Akbank, Turkey's biggest bank by market value, dropped 6.63 percent to 3.66 lira. "The association (with Citibank) makes it more vulnerable," said trader Can Oksun of Ekspres Invest.
Oksun said the fall in Akbank's shares was a "knee-jerk reaction" because Sabanci Holding and the Sabanci family, which control most of Akbank, would have the right of first refusal if Citigroup were to sell its stake. The lira fell to 1.7120 to the dollar, from a Thursday's close of 1.6740 on the interbank market. It traded at 1.702 in Monday-dated trade.
The central bank cut overnight borrowing rates on Thursday to 11.50 percent from 13.00 percent and the lending rate to 14.00 percent from 15.50 - record lows in Turkey.
The yield on the benchmark Turkish bond maturing on November 3, 2010, fell to 14.78 percent from the previous day's close of 15.28 percent after the central bank's larger-than-expected surprise interest rate cut. "This is probably the lowest interest-rate environment Turkey has ever witnessed. The main risk is to the Turkish lira, which we expect to continue its depreciation especially after latest rate cut," analysts at Tera Brokers said in a research note. The lira has so far fallen by around 10 percent to the greenback this year, after losing 25 percent of its value in 2008.