By Herbert Lash
After three weeks of heavy pounding, the lira got some respite as signs Turkish authorities were trying to address the unresolved damage triggered a more than 5 percent relief rally to just under 6.5 per dollar.
Still, the currency lost almost 10 percent on Monday and nerves were briefly tested again as President Tayyip Erdogan urged Turks to boycott U.S. electronic products in response to recent criticism from Washington.
"I don't believe it's all over," said Minh Trang, senior currency trader at Silicon Valley Bank in Santa Clara, California. "We are just getting a bit of reprieve from the recent down move."
The Turks have exhausted the possibility of interest rate hikes and are backed into a corner by their inadequate level of currency reserves, Paul McNamara, emerging markets investment director at GAM Investments in London, said in a note.
A much-needed demand slowdown in Turkey is causing asset quality problems in banks, he said. The role of construction in the Turkish economy, for example, is comparable to that in Spain or Ireland ahead of the European bust a decade ago, he said.
MSCI's gauge of global equity markets halted a four-day slide to rise 0.32 percent, while Japan's Nikkei jumped 2.28 percent in its biggest one-day gain since March.
European shares steadied after a two-day selloff as concerns about contagion from Turkey's currency crisis eased. The pan-regional FTSEurofirst 300 index closed up 0.06 percent and the benchmark STOXX 600 closed flat.
Data showing the region's largest economy, Germany, picking up more steam than expected in the second quarter helped sentiment in Europe, though the markets' bounce might have been bigger had Chinese economic surveys not disappointed.
Investment growth slowed to a record low while industrial output and retail sales both missed expectations.
The downdraft for emerging market currencies stopped, with the South African rand, Russian ruble and Mexican peso, a proxy for emerging market currencies, all rising.
Still, MSCI's emerging markets index for equities fell 0.27 percent to its lowest since July 2017.
Stocks on Wall Street rallied. The Dow Jones Industrial Average rose 120.76 points, or 0.48 percent, to 25,308.46. The S&P 500 gained 19.56 points, or 0.69 percent, to 2,841.49 and the Nasdaq Composite added 57.31 points, or 0.73 percent, to 7,877.02.
The euro fell, hitting 13-month lows against the dollar and Swiss franc, as traders fretted over the exposure of European banks to Turkey.
The dollar index rose 0.35 percent, with the euro down 0.61 percent to $1.1338. The Japanese yen weakened 0.33 percent versus the greenback at 111.10 per dollar.
Oil prices jumped after Saudi Arabia said it cut production, adding to concerns about global supply as U.S. sanctions against Iran bite its exports.
U.S. crude rose 18 cents to $67.38 a barrel and Brent gained 22 cents to $72.83.
(Reporting by Herbert Lash, additional reporting by Richard Leong in New York; Editing by Bernadette Baum)
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