Turkey's new prime minister faces many financial challenges

The falls came as it became increasingly clear that Turkey's sluggish economy will not enjoy billions of dollars of American aid in light of its stance on Iraq.

The lira lost 3.6% to close at 1,710,000 to the dollar, its lowest level since July 2002.

The Turkish share index lost almost 11% to 9,483 points, its lowest close since mid-October.

US troops

There was no indication that Ankara was ready to put US deployment of troops on the agenda again after newly elected prime minister's Tayyip Erdogan's cabinet met for the first time on Monday.

This is the negative reflection of war being near Ali Guler, research head at Deger Securities

A motion on the American troops was rejected by Turkish parliament on March 1 amid strong opposition to war with Iraq.

The lira fell after it became clear the Turkish government was not going to ask parliament to reconsider a motion which would allow 62,000 US troops to be stationed in Turkey in return for up to $30bn in aid from Washington.

"This is the negative reflection of war being near, that cooperation with America is not secured and of fears that Turkey will suffer deep losses," said Ali Guler, research head at Deger Securities in Istanbul.