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Markets rattled as Turkish lira dives to record lows

Aug 13 2018 13:53

Turkey's troubled lira tumbled on Monday to fresh record lows against the euro and dollar, sending stock markets sliding on fears the country's crisis could spill over into the world economy.

The lira's collapse already sparked a sell-off on European and New York stock markets late last week, with haven assets including the yen and Swiss franc rallying.

The lira dived further overnight to record lows of 7.24 to the dollar and 8.12 versus the euro.

The unit recovered somewhat after Turkey's central bank announced a raft of measures aimed at calming markets.

"Investors remained fearful on Monday (over) the Turkish lira's precipitous plunge - and the concerns that a financial crisis in the country would ripple through the rest of Europe," said Spreadex analyst Connor Campbell.

European equities and the euro slid Monday on worries about the possible impact on some European banks, including Spain's BBVA, Italy's UniCredit and France's BNP Paribas.

'Limited impact so far'

"So far the impact of the lira crash has been limited in Europe and the rest of the world," said Agathe Demarais, Turkey analyst at The Economist Intelligence Unit, in comments emailed to AFP.

"However, within a few months western banks that have strong ties with Turkey will feel the impact of the crisis as Turkish corporates will struggle to repay debt in foreign currency.

"The sharp depreciation of the lira has almost doubled the local currency value of external debt repayments since the start of the year," Demarais added.

The lira tumbled some 16% against the dollar on Friday, as US President Donald Trump said he had doubled tariffs on steel and aluminium from Turkey.

The crisis has been sparked by a series of issues including a faltering economy - the central bank has defied market calls for rate hikes - and tensions with the United States, which has hit Turkey with sanctions over its detention of an American pastor.

Investors are now fretting over potential economic contagion.

In its first statement since what was dubbed "Black Friday" in Turkey, the nation's central bank said on Monday that it was ready to take "all necessary measures" to ensure financial stability, promising to provide banks with "all the liquidity" they need.

The bank also revised reserve requirement ratios for banks, in a move also aimed at staving off any liquidity issues.

But to the dismay of markets, the statement gave no clear promise of rate hikes, which is what most economists say is needed.

Bayer stock plunges

In Europe on Monday, London's benchmark FTSE 100 index was down 0.6% in midday deals and the Paris CAC 40 declined 0.4%.

Frankfurt's DAX 30 index shed 0.6%, with top faller Bayer slumping almost 12%.

Investors fled shares in German chemicals and pharmaceuticals giant, fearing a massive damages ruling against one of newly-acquired US firm Monsanto's flagship products could signal a wave of costly lawsuits.

A California jury on Friday awarded dying groundskeeper Dewayne Johnson damages of almost $290m, saying Monsanto should have warned buyers that its flagship Roundup weedkiller could cause cancer.

While observers have predicted thousands of other suits could follow, Bayer said the jury's findings went against scientific evidence and that other courts might "arrive at different conclusions".

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