(Corrects comparative figure for 266-day bills)
CAIRO Nov 25 (Reuters) - Yields on Egyptian treasury bills rose on Sunday after a flare-up of political unrest dashed hopes for stability since Islamist President Mohamed Mursi's election in June.
A decree issued on Thursday by Mursi to widen his powers and shield his decisions from judicial review triggered a political crisis and street protests that have left more than 500 people injured.
"The market had priced in a lot of optimism over the past few months, and the incidents that took place over the weekend completely wiped that out," said Youssef Kamel, a fixed-income analyst at Rasmala.
The average yield on 1.5 billion Egyptian pounds ($246.35 million) of 91-day T-bills rose to 12.494 percent from 12.299 percent at an auction last week, while that on 3.5 billion pounds of 266-day bills climbed to 13.190 percent from 12.953 percent at an auction two weeks ago.
The central bank sold all 5 billion pounds of T-bills that were on offer, it said. Yields on 91-day bills had gradually been declining from above 14.75 percent before Mursi was elected in June.
On Tuesday, Egypt signed a preliminary agreement with the International Monetary Fund for a $4.8 billion loan, a step seen as seal of approval to the government's economic programme and vital to shoring up the country's finances.
Mursi's Muslim Brotherhood supporters were expected to turn out again on the streets in a show of support for the president's decree after prayers on Sunday afternoon. More violence is feared as both they and Mursi's opponents are planning massive demonstrations on Tuesday.
"The president's decisions have created further divisions in the country, which could have severe consequences going forward, especially since these decisions have created conflict with the judiciary authority," Kamel said. "Political uncertainty is back near its highest levels."
Egypt's main share index plunged 9.5 percent on Sunday to its lowest since July 31 in the first trading session since Mursi ignited the political crisis.
The falls were the index's biggest decline since March 2011, when the market reopened after the popular uprising that ousted Hosni Mubarak. ($1 = 6.0890 Egyptian pounds) (Reporting by Patrick Werr; Editing by Sophie Walker)