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Turkey Stocks Reach 2013 Low as Protests Trigger Bank Tightening

Turkey stocks slumped to their lowest level this year as protesters clashed with riot police and the central bank implemented additional tightening measures to curb currency volatility.

The Borsa Istanbul National 100 index fell 1.8 percent to 75,041.03 at the close, the lowest level since December 2012. The gauge dropped to 74,306.98 in intraday trading, 20 percent below its high reached on May 22, a threshold that signals bear market to some investors. Yields on the government’s two-year benchmark notes surged to the highest level since November.

Turkey’s stocks slid as Prime Minister Recep Tayyip Erdogan accused protesters of being pawns of financial speculators seeking to drive borrowing costs higher. “This is over, from now on these incidents won’t be tolerated,” he said in an address to his deputies in Parliament today. “This Tayyip won’t change.”

“Since May 31, political risks that weren’t priced in before started being realized,” Cuneyt Paksoy, an investment committee member at Rhea Asset Management in Istanbul, said in a phone interview. “We also have the rise in benchmark two-year yields, which creates a negative sentiment for banks.”

Turkiye Garanti Bankasi AS, lender co-owned by Banco Bilbao Vizcaya Argentaria SA, led the index’s decline, dropping 2.8 percent. Haci Omer Sabanci Holding AS, second-biggest industrial group, fell 3 percent, while Turkiye Is Bankasi AS, the nation’s biggest lender by assets, declined 2.7 percent.

Bear Market

The benchmark index plummeted more than 10 percent on June 3, the first business day after the protests erupted. It advanced 4.9 percent the next day. The high volatility in the market creates an “anomaly,” Paksoy said. “We’re seeing a market reaction against uncalculated risks. We are practically in bear market territory anyway.”

Riot police retook Taksim Square in central Istanbul from protesters who refused to leave the area since an environmentalist protest against the government rapidly turned into nationwide demonstrations on May 31.

The lira gained 0.6 percent to 1.8904 per dollar, after depreciating as much as 0.4 percent. Turkey’s central bank introduced additional measures today to tighten liquidity and curb volatility. The bank said it may start direct interventions in the currency market today to protect the lira, which has weakened 4.8 percent in the past month.

Lenders led the slump in stocks, with the 16-member banking index sliding 2.1 percent to its lowest level since November.

Yields on two-year benchmark notes jumped 32 basis points, or 0.32 percentage point, to 6.82 percent.

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