The overnight swap rate in London soared to 470 percent, after a big jump on Tuesday, reflecting the extreme difficulty faced by foreign investors looking to sell lira or hedge against holdings.

Trading remained volatile in the wake of the lira's meltdown on Friday, which marked its worst performance since August when a full-blown currency crisis took hold and tipped Turkey's economy into a recession that could last deep into this year.

At 0633 GMT, the lira stood at 5.3925 against the U.S. dollar, easing from a Tuesday close of 5.3251. It had weakened to 5.8490 on Friday before settling at 5.7625, its lowest closing value since October.

The selloff, just over a week before local elections on Sunday across the country, was driven by Turks losing confidence in the lira and buying more foreign cash.

The government's response, including launching investigations into bankers, alarmed foreign investors, while the central bank's "back door" measures to control liquidity have severely stemmed the selling of lira on overseas markets.

"The currency now rallied, so things seem to have stabilised a bit but Turkey remains vulnerable, especially as the current account is again in negative territory," Nikolay Markov said, a senior economist at Pictet Asset Management.

The Turkish lira overnight swap rate in London was 470 percent early Wednesday, from 330 percent on Tuesday, after Turkish banks started to keep swap market transactions well bellow a regulator's limit. Last week, the lira overnight swap rate was around 24 percent.

Beginning late on Monday, Turkish banks started to keep lira swap market transactions in London well below a 25-percent limit set by the banking watchdog, four sources with knowledge of the matter told Reuters, causing overnight and weekly swap rates to soar.

Turkey's main BIST 100 index opened up 0.45 percent, while banking index rose 0.58 percent.