ISTANBUL — Turkey's central bank on Monday sought to calm markets rattled by the precipitous plunge of the Turkish lira as a defiant President Recep Tayyip Erdogan chastised the US for seeking to stab Ankara "in the back."

A dispute between NATO allies Turkey and the United States — which reached new intensity over the detention of an American pastor — has hammered the lira and also raised questions over the future partnership between Washington and Ankara.

As the latest developments caused the lira to plunge further in value, investors fretted over potential economic contagion from Turkey, particularly to European banks.

The already embattled Turkish lira tumbled some 16 percent against the dollar on Friday as US President Donald Trump said he had doubled tariffs on steel and aluminium from Turkey.

"We are together in NATO and then you seek to stab your strategic partner in the back. Can such a thing be accepted?" Erdogan said at a conference in the capital Ankara.

After Erdogan's speech, the lira was trading back at 6.9 to the dollar, a loss of seven percent on the day, recovering from even sharper losses in earlier Asian trade where it struck a record low of 7.2362 to the greenback.

In its first statement since what was dubbed "Black Friday" in Turkey, the central bank said it was ready to take "all necessary measures" to ensure financial stability, promising to provide banks with "all the liquidity" they need.

'Economic siege'

Erdogan indicated he was in no mood to offer concessions to the United States in one of the worst spats between the two NATO allies in years.

Erdogan said Turkey was facing an "economic siege", slamming the currency movements as an "attack against our country."

The Turkish leader has been sanguine over the punitive measures announced by the US, saying that while Turkey's relationship with Washington is at stake it will look for other partners.

Analysts say that while Washington's sanctions against Ankara sparked the immediate crisis, Turkey's economy has been risking trouble for a while due to high inflation and the weak lira.

The central bank has over the last few weeks defied calls from markets for rate hikes to combat these problems, raising fears of interference from Erdogan who has repeatedly called for low interest rates.

'Unlikely to happen

American pastor Andrew Brunson has been held since October 2016 on terror and espionage charges and, if convicted, could face a jail term of 35 years. Trump has described his detention as a "total disgrace" and urged Erdogan to free him immediately.

A delegation led by Turkish Deputy Foreign Minister Sedat Onal failed to secure a deal last Wednesday in talks in Washington on a number of issues including Brunson.

Erdogan on Sunday confirmed media reports that Washington gave Onal's delegation a deadline of 6:00 pm last Wednesday for the release of Brunson "otherwise the sanctions will begin".

Agathe Demarais, lead Turkey analyst at the Economist Intelligence Unit, told AFP that "with an overheated and indebted economy, Turkey will require credibly orthodox economic policies, fiscal discipline and central bank independence to reverse the current situation."

"A normalisation of relations with the US could also reduce the amount of legwork that the central bank will have to do to control the economic situation, but this is unlikely to happen at the moment," she said. — AFP