ISTANBUL - Turkish shares plummeted and the currency weakened on Monday amid a global stockmarket rout and fears of political instability following a top prosecutor's bid to ban the ruling party.
The national index of the Istanbul stock exchange fell 7.51 percent, or 3,199.8 points in morning trading before gaining a mere O.06 percent, or 23.3 points, in afternoon deals.
Shares closed the day at 39,409,4 points, down 7.46 percent from Friday's closing figure.
The national currency, the lira, lost 3.3 percent against the dollar, trading at 1.275 on Monday compared to 1.231 on Friday.
Yields on the bond market rose, with interest rates on the benchmark October 7, 2009 bond climbing to 18.35 percent from Friday's close of 17.75 percent.
The losses came amid a global stockmarket rout sparked by the near collapse Friday of US investment bank Bear Stearns and a flight from the dollar into the euro and commodities such as gold and oil, which investors think will be safer.
In addition, Turkey was left facing a lengthy period of political uncertainty on Friday when Abdurrahman Yalcinkaya, the chief prosecutor of the court of appeals, asked the constitutional court to shut down Prime Minister Recep Tayyip Erdogan's Justice and Development Party (AKP) for anti-secular activities.
The prosecutor also demanded that 71 AKP members, among them Erdogan and President Abdullah Gul, be barred from politics.
The court began studying the indictment on Monday and a verdict is not expected for several months.
"The initial fall is linked to the bid to ban the AKP because the government will be forced use its political energy to deal with the case, thus slowing down reforms linked to the European Union and the International Monetary Fund, as well as privatization efforts," said Ozgur Altug, chief economist at Raymond James.
He noted that Turkish markets were influenced more by global trends rather than domestic matters but said that "the court case limits investor expectations of a recovery in the mid-term."
Investors, he said, are also concerned over possible political instability in Turkey if the constitutional court bans the AKP, although the risk had not been priced in yet.
"If there is no political stability, there is no investment. What investors fear is that the stability that Turkey has been gradually achieving despite difficult conditions abroad is now in danger," he added.
The AKP, which first came to power in 2002 as an untested party, won kudos from the bussiness community in its first-term in power as it consolidated the country's recovery from a severe recession, attracted record foreign investment and launched membership talks with the European Union.
At the same time, the AKP was locked in a bitter feud with Turkey's secularist forces, among them the army, the judiciary and academia, who are wary of the party's roots in a now-banned Islamist movement.
Secularists accuse the party of having a secret plan to introduce religious rule in the mainly Muslim country. The AKP rejects the charges and says it is fully committed to secularism as enshrined in the constitution.
The row peaked last year when the party promoted a former Islamist as president and Erdogan was forced to call snap elections from which the AKP emerged with nearly 47 percent of the vote and a second-term in power.
Tensions flared again last month when the AKP pushed through parliament a controversial bill to allow university students to wear the Islamic headscarf -- seen by many as a symbol of defiance against secularism.
The constitutional court has in the past banned several Islamist parties, among them the Welfare Party of Turkey's first Islamist prime minister Necmettin Erbakan, who used to be Erdogan's mentor.
han/nh

03/17/2008 15:34 GMT