The Fed on Wednesday warned of significant downside economic risks, while China and Germany both released data showing economic growth could slow.

The lira’s weakness became more acute, and bonds were also hurt, after the Turkish central bank sold $70 million in a daily forex auction on Thursday that had drawn bids for $200 million.

The lira closed at 1.8310 on the interbank market compared with a previous close of 1.8070.

In the afternoon trade the lira slumped to its all time weakest level of 1.8440 versus the dollar.

Tufan Comert, strategist at Garanti Securities, said the lira was weakening in tandem with other emerging market currencies, and noted the sharp declines in eastern Europe.

Given the uncertainties, some bankers were unsurprised that the central bank would seek to preserve forex reserves.

“The Turkish central bank would prefer to keep its reserves at a high level in such an outlook. If the EUR/USD decreases to the 1.30 level, then the lira could weaken to 1.85 versus the dollar,” said a manager of private banking sale unit of a bank in Istanbul.

Turkey’s benchmark May 15, 2013 bond yield closed at 8.5 percent up from Wednesday’s close of 8.16 percent.

“The rise in bond yields to 8.50 percentage level could be considered quite normal given the stop-loss selling,” said Murat Oner, pension funds division head at Yapi Kredi Bank.

The bond market did not react to a central bank survey showing expectations for year-end inflation had risen while medium-term inflation expectations had fallen.

The main Istanbul share index closed down 4.68 percent at 57,979.9 points, outperforming the emerging markets index which was down 6.43 percent.

The Istanbul market had risen sharply on Tuesday thanks to Standard & Poor’s upgrading its rating for Turkish local currency debt, and some dealers saw investors seeking to hold those gains.

“In the medium term, I expect the ISE to decouple positively,” said Mert Ulker, vice-president of FinansInvest.