The lira slipped to as far as 5.8504 against the dollar, its weakest level since October excluding a brief overnight "flash crash" in January. It stood at 5.8350 at 0835 GMT.
The lira tumbled nearly 30 percent in 2018 when a currency crisis tipped Turkey's economy into recession. It has fallen another 10 percent this year on concerns over Turks increasingly turning to foreign currencies, the government's willingness to enact comprehensive reforms, and fraying U.S. diplomatic ties.
On Wednesday, the Financial Times reported that Turkey's central bank had bolstered its foreign currency reserves with billions of dollars of short-term borrowed money, raising fears among investors that the country is overstating its ability to defend itself in the event of a fresh lira crisis.
"We can see with the Financial Times story that concerns regarding central bank reserves have increased," said a treasury desk trader at one bank.
"We cannot say that reserves are in a very good situation but contrasting stories and comments recently show the subject has not been well analysed, explained and calculated," the trader said.
Data on Thursday showed the central bank's net international reserves stood at 162.4 billion lira ($28.44 billion) as of April 12, up from 157.3 billion lira a week earlier. The figures are released in lira and are converted by Reuters to U.S. dollars using the central bank's official exchange rate from the previous day.
The Financial Times report said its calculations suggest the central bank's net reserves had been enhanced by an unusual surge in the use of short-term borrowing, or swaps, since March 25.
According to Reuters calculations based on central bank data, the central bank's unmatured swap sales in the lira swap market amounted to around $12 billion as of April 17. The central bank has raised its total lira swap sale limit to 40 percent from 10 percent for swap transactions that have not matured.
The FT said that in a written response to its questions, the central bank acknowledged that its use of currency swaps "may impact reserve figures," but said its method for accounting for them was in "full compliance with international norms."
The central bank did not immediately comment to Reuters on the issue.
The main Istanbul stock index fell 1.35 percent, with the banks index down 2.55 percent.
Turkey's dollar-denominated sovereign bonds slumped, with its 2045 bond losing as much as one cent, according to Tradeweb data, undoing the previous day's gains.
On Wednesday, the lira firmed to 5.72 after Ekrem Imamoglu of the secularist Republican People's Party became mayor of Turkey's commercial hub, ending 25 years of control by President Tayyip Erdogan's AK Party (AKP) and its Islamist predecessors.
The loss of control in Istanbul was a heavy blow to Erdogan, but the AKP has appealed to election authorities to have the elections annulled and re-run.