Political tension hits Turkish stock market

Turkish stocks fell the most in a week as the tension between the judiciary and government rises to unprecedented levels, fueling concern the ongoing fight will hurt stability.

Deputy Prime Minister Bülent Arınç and top officials in the judiciary issued harsh statements against one another in the wake of Wednesday’s arrest of İlhan Cihaner and the subsequent decision by the Supreme Board of Judges and Prosecutors, or HSYK, to revoke the authority of Osman Şanal.

Analysts agree the episode has brought Turkey face to face with one of the deepest judiciary crises in its history.

Istanbul Stock Exchange’s benchmark ISE-100 index lost nearly 1.6 percent on Thursday, closing the day at 52,449 points. The index has lost 1.7 percent since the start of the year. Bonds fell, with yields rising 10 basis points to 8.91 percent, according to an ABN Amro index. The U.S. dollar has gained 0.2 percent against the Turkish Lira and was trading at 1.5157 liras at 6:10 p.m. on Thursday. The greenback has advanced 2.3 percent against the lira since Jan. 1.

Stocks in Turkey and elsewhere were also hurt after a report showed jobless claims unexpectedly rose in the U.S., pointing to an uneven recovery in the labor market in the world’s largest economy. The number of Americans filing first-time claims for unemployment insurance rose by 31,000 to 473,000 in the week ended Feb. 13, Bloomberg reported.

“In Turkey political risks may be creeping up a notch again,” said Timothy Ash, an emerging markets economist at the Royal Bank of Scotland in London. In a note to investors on Thursday, Ash said there is “always lots of noise in Turkey on the political front,” particularly in terms of the government’s relations with the so-called “secularists.”

“So, it is an ever present problem in Turkey of determining what is really important at any point in time,” the analyst said. “Our base case on the political front for Turkey has been that while there will be lots of noise, neither the Justice and Development Party [government] nor the secular establishment has much interest in crossing key red lines before the 2011 elections. However, we would still argue that this latest event does need close monitoring.”

The decline in the ISE-100 index was led by Kardemir Karabük, which fell 4.8 percent. The best performer in the index was Nortel Networks Netaş, which gained 10.6 percent.

The stock market decline was led by industrials, which on average lost 2.4 percent, followed by financials and health care stocks. Technology stocks in the index gained an average of 2.6 percent, while consumer goods was the other sector that gained, with an average rise of only 0.1 percent.

In another development, the Treasury Department in Ankara said it will sell 728-day bonds indexed to revenue at state-run companies as it seeks to diversify means of borrowing. The bonds, which are in line with Islamic finance rules, will be sold on Feb. 24. The Treasury has set a maximum ceiling of 2.58 billion liras ($1.7 billion) for the sale.