Turkish shares fell 6 percent in morning trade Monday and the lira plunged to a new record low against the dollar, as investors took fright at new political uncertainty following legislative elections.
Turkey's central bank acted swiftly in an intervention to give some support to the pressured Turkish lira, saying it was pruning its short term foreign exchange deposit rates effective Tuesday.
The BIST 100 index on the Istanbul stock exchange was down 5.67 percent in opening trade while the Turkish lira lost 4.0 percent in value against the dollar to trade at 2.76 lira to the dollar.
The lira had earlier lost value to break the 2.8 lira to the dollar ceiling for the first time.
The Justice and Development Party (AKP) won the biggest portion of the vote in Sunday's legislative polls but came well short of a parliamentary absolute majority for the first time since it came to power 13 years ago.
The situation has created huge political uncertainty, with a coalition, early elections and a minority government all seen as possible outcomes.
The result also wrecked President Recep Tayyip Erdogan's plan to agree a new constitution to create a strong presidency with him at the top.
"The election outcome failed to clarify uncertainties in Turkish politics," said Ozgur Altug of BGC partners in Istanbul. "Until the formation of the new government, uncertainty will continue."
The central bank said the foreign exchange deposit short term interest rate has been reduced from 4 percent to 3.5 percent for dollar deposits and from 2 percent to 1.5 percent for those in euro.
The decision was due to "recent global and local developments", it said, in an apparent reference to the domestic situation.
Altug said the move was the "first action of the bank against the lira's depreciation" but had so far only had a limited impact on the currency's value.
The election has come against the background of growing concern for the Turkish economy, with growth slipping under three percent in 2014.
The AKP had been lauded in its early years in power for driving Turkey to new levels of growth and prosperity with pro-reform policies.
But markets had been rattled earlier this year by Erdogan's leanings towards populist economic policies and a standoff with the central bank over rates.
"The election outcome paves way to extensive political discussions and negotiations that may last for several weeks," said Deniz Cicek of Finansbank in a note to clients.
"Thus, markets will focus on how the prospects of forming a stable government will unfold in the weeks to come."