Turkish lira hits another record low on political uncertainty

The Turkish lira hit a record low and stocks tumbled as much as 3 percent on Thursday after coalition talks between the ruling AK Party and the main opposition failed, setting the stage for a snap election and more investor uncertainty.

Markets had been hoping the Islamist-rooted AKP would be able to form a coalition with the centre-left, pro-business CHP and avoid an early election.

But an election now looks likely in the autumn, increasing uncertainty in Turkey as it battles ISIS insurgents in Syria and Kurdish militants at home.

"It's not clear when elections will be. But the idea is that it probably will act as yet another catalyst that impedes investment," said Manik Narain, a strategist at UBS in London.

"The big risk is that we end up having repeat elections and nothing changes. That introduces a lot of uncertainty for Turkish business and the economy."

The AKP failed in June's election to win a single-party majority for the first time since coming to power in 2002.

Prime Minister Ahmet Davutoglu said a fresh election now appeared to be the only option after the coalition talks broke down. He urged parliament to back a new poll and said he would prefer it to be held as soon as possible.

None of this is good news for an economy already hobbled by bearish investor sentiment.

"The prospect of a further period of political uncertainty adds to a daunting list of problems facing Turkey, including slow growth, high inflation and a large current account deficit," said William Jackson of Capital Economics.

"Given Turkey's increasing involvement in the conflict in Syria and with interest rate hikes looming in the United States, this couldn't come at a worse time."

The lira, already one of the worst performing major emerging market currencies this year, tumbled to 2.8210 against the dollar, its weakest on record.

The BIST 100, the broadest measure of Istanbul stock performance, fell as much as 3 percent before finishing the day down 1.4 percent.

Technical indicators show the lira could be in for a rougher ride ahead, with charts pointing to scope for the currency to fall to 3.0 to the dollar.