source: www.reuters.com

Tue Nov 18, 2008 6:09am EST

ISTANBUL, Nov 18 (Reuters) - Turkish stocks slumped to their lowest levels in more than three years on Tuesday and the lira continued its decline versus the dollar, as the prospects of a deep global recession intensified, battering markets worldwide.

Turkish stocks .XU100 closed morning trading down 3.2 percent at 23,279 points, their lowest level since early 2005, accentuating Monday's losses when the index closed down 5.42 percent.

Stocks traded in-line however with the MSCI emerging stocks index .MSCIEF, which weakened 3.3 percent.

"Nothing seems to stop the bearish outlook in the near term," said Deniz Can Yucel, head of equity research at Yatirim Finansman Securities.

"The delay of the agreement with the IMF and downgrades by S&P for Turkish banks after the country's outlook was downgraded have put further pressure on the market," he said, adding hedge fund redemptions were also playing a big role in the sell-off.

On Monday Standard & Poor's Ratings Service downgraded its outlooks on seven Turkish banks including Is Bank (ISCTR.IS: Quote, Profile, Research, Stock Buzz) and Garanti Bank (GARAN.IS: Quote, Profile, Research, Stock Buzz) to "negative" from "stable" due to more difficult financing conditions, and likely weaker loan growth and financial performance.

Major Turkish lender Akbank (AKBNK.IS: Quote, Profile, Research, Stock Buzz), whose shares traded down 2.5 percent at 3.9 lira, said on Tuesday it had not made any changes in its growth targets, brushing aside media reports that it had cut staff levels by around 1,000.

Turkish business leaders have been lobbying the government to strike a new deal with the International Monetary Fund to restore investor confidence in the emerging market country after the previous stand-by loan agreement expired in May.

Analysts at Is Bank wrote in a research note equities might find some support as the index neared the 23,500 level.

The lira slipped to 1.6595 against the dollar on the interbank market from Monday's close of 1.6330.

Turkish stocks have now lost 58 percent of their value since the start of 2008 -- and third quarter earnings from Turkish companies have provided little comfort. The lira has lost approximately a third of its value against the dollar this year, and is now trading at levels from early 2006.

The yield on the benchmark June 23, 2010 bond <0#trtsysum=is> rose to 22.59 from 22.08 percent on Monday.

(Reporting by Alexandra Hudson; editing by Stephen Nisbet)