ISTANBUL • The sudden exit of Turkish Prime Minister Ahmet Davutoglu yesterday frayed investors' nerves, already tested by months of political uncertainty, and analysts warn of a period of sustained pressure for the lira and stock market.

Mr Davutoglu's departure paves the way for the naming of a prime minister more pliant to the will of President Recep Tayyip Erdogan, who has long sought to expand his influence on economic policy.

The lira lost almost 4 per cent against the US dollar on Wednesday - its heaviest daily loss this year - as news broke that crisis talks between Mr Davutoglu and Mr Erdogan had failed to resolve tensions between the two men.

The currency rallied slightly yesterday to trade at 2.90 to the dollar, up 1.84 per cent, but still off its 2.85 level against the dollar before the news broke.

"Politics has once again emerged as a major risk for the lira, which is likely to remain vulnerable in the coming days," analysts at Rabobank said.

The equity markets also took the news badly, with participants fearing the development was a move by Mr Erdogan to tighten his grip on all areas of policy, including the economy.

After heavy losses in the past few days as the risk of political uncertainty became clear, the Istanbul stock market's benchmark 100 Index gained 0.39 per cent to 79,689 points.

Rabobank said Mr Davutoglu had been perceived by markets as being "far more moderate" than Mr Erdogan, and the premier's exit "will be a major blow for the lira and Turkish assets".

AGENCE FRANCE-PRESSE