The ISE suspended trade after what one trader said was panic selling

The Istanbul Stock Exchange suspended trading after the main index dropped more than 7%.

The lira was lower when banks resumed trading and stocks fell across Europe.

One Istanbul trader, who asked not to be named, said: "There were panic sales on the stock market after news of the blast came."

Major European stock markets were 1-2% lower in the hours immediately following the blasts.

Does it send the economy into recession and derail things? I don't think so Debbie Orgill, economist ABN Amro Check out Turkish lira rates

But after US markets opened only modestly lower, London, Paris and Frankfurt recovered slightly to be about 0.5% down.

Airlines, tour operators and hotel companies were some of the shares hardest hit as investors anticipated a tourism downturn.

Shares in HSBC were 1.2% lower at 861 pence.

Knee jerk

Crude oil traded in London rose 28 cents to $30.06 a barrel.

"Although it [the bombing] doesn't affect the flow of oil, it highlights the terrorist problem still out there, so the market got firmer purely on the back of that news," said Robert Laughlin, a trader at GNI.

The Turkish lira fell by a modest 0.5% to 1.483 million to the dollar, when trading resumed.

EUROPEAN SHARES HIT Hilton, hotels: -5.3% Lufthansa, airline: -4.6% TUI, travel giant: -4.5% Source: Thomson Financial

Banks had earlier halted trade.

Turkey's benchmark debt also weakened sharply in London trade.

Debbie Orgill, emerging markets economist at ABN Amro bank, said the reaction was a "knee jerk" rather than a sign of lasting economic damage.

"Does it send the economy into recession and derail things? I don't think so."

She added: "The export sector is the driver of the economy, and global growth is apparently picking up."

Tourism hit

Turkey's economy has been struggling for some time, not helped by the events in neighbouring Iraq knocking both investor confidence and its important tourism sector.

While its tourism industry will inevitably be hit by the latest explosions, there are signs that the Turkish economy is heading towards recovery, analysts say.

Only last week the World Bank said it was considering lending the country up to $4.5bn (�2.7bn) to assist its economic recovery and smooth the way for Turkey's hoped-for membership of the EU.

The US has also agreed to give Turkey a new $8.5bn loan, and the International Monetary Fund has given the go-ahead for another $475m in assistance.

Turkey will also benefit from the planned new oil pipeline to run from Azerbaijan to its Mediterranean port of Ceyhan.