Turkish stocks declined the most in the world and the lira slid after an eruption of violence on the border with Syria triggered concern security risks were escalating.
The Borsa Istanbul 100 Index fell 1.5 percent, the most among more than 90 gauges tracked globally by Bloomberg. The currency had the biggest decline in a week as Turkish artillery units shelled Syrian Kurdish forces suspected of trying to seize more territory along the border over the weekend. The US has urged both sides to halt their fire.
The flareup in fighting over the weekend threatened to further destabilize efforts to contain the IS as Syrian government troops backed by Russia advance against rebels backed by Turkey and Saudi Arabia.
Turkish assets have been rocked over the past four months after a deadly bombing in the nation’s capital Ankara in October, the downing of a Russian military jet a month later and a blast in Istanbul in December.
“Stocks are losing ground due to concerns about the further escalation of geopolitical risks after Turkey starting bombing,” said Gulsen Ayaz, a director of institutional equity sales at Deniz Yatirim in Istanbul. “Turkish assets unfortunately cannot benefit from the globally positive environment.”
The lira slid 0.8 percent to 2.9513 against the dollar at 11:08 a.m. in Istanbul. The yield on 10-year bonds climbed 11 basis points to 10.81 percent.
The selloff comes amid a rebound in global equities amid speculation authorities from Europe to Japan will increase stimulus to stabilize economic growth.
Prime Minister Ahmet Davutoglu said on Saturday that Turkey had returned shellfire by YPG, Syrian Kurdish fighters who are classified by Turkey as terrorists, from the Syrian town of Azaz under the military’s rules of engagement, according to the state-run Anadolu news agency. Anadolu also reported on Saturday that Turkish forces responded to a mortar attack from the Syrian military that targeted a police station in Turkey, citing an unidentified military source who didn’t disclose what form of retaliation Turkey used.
The Pentagon said Turkish and Syrian Kurdish forces share an enemy in Islamic State, and urged all parties to abide by agreements made in Munich this week to seek a cessation of hostilities in Syria.
Saudi Arabia moved fighter jets to a Turkish airbase and offered its special forces for a possible ground offensive in Syria by a US-led coalition battling Islamic State. The offer comes as Syrian government troops threatened to drive rebels out of Aleppo with the help of Russian airstrikes.