UPDATE 2-Turkish lira hits record low on capital outflow fears
* Lira weakest ever against the dollar
* Central bank rate hikes seen as not enough
* Stocks fall to 10-month low, bond yields rise (Adds lira at weakest ever, stocks at 10-month low)
By Dasha Afanasieva
ISTANBUL, Aug 21 (Reuters) - Turkey's lira hit its weakest ever on Wednesday and stocks tumbled to a 10-month low as investors feared the central bank would struggle to stem capital outflows in the face of an expected stimulus pullback from the U.S. Fed.
The lira fell to 1.9740 to the dollar by 1518 GMT, while the main share index tumbled 3.5 percent to its lowest close since October 2012, underperforming a 0.9 percent drop by emerging markets peers
Emerging markets assets saw a broad sell-off as investors bet minutes of the U.S. Federal Reserve's latest policy meeting, due to be released 2 p.m. (1800 GMT), will solidify expectations of a tapering in its massive bond-buying programme next month.
Turkey is particularly vulnerable, being heavily dependent on foreign inflows to finance its gaping current account deficit, running at over 7 percent of national output.
"The days of investing in anything with an emerging markets handle, and a bit of carry, are kind of gone for the time being ... Bottom-up country analysis is back. Avoid countries with deficits," said Standard Bank economist Timothy Ash.
"I guess what the market now wants to see is a more strident hike in the lending/benchmark rates, which would send a message that the Turkish central bank is willing to hold rates high for as long as it takes," he said in a note.
"At the moment the market does not like the flexible approach which (the bank) is running."
The central bank raised its overnight lending rate for a second straight month on Tuesday, hiking it by 50 basis points to 7.75 percent in a surprise move to try to prevent an uncontrolled slide in the lira.
In a further tightening move, it said on Wednesday it would withhold its regular one-week repo auctions until further notice and would hold daily forex auctions of at least $100 million.
But the moves were not enough to calm market jitters.
Turkey's 10-year benchmark bond yield closed up at 9.7 percent from Tuesday's close of 9.36 percent, while the fall on the stock index brought total losses to more than 25 percent since it hit all-time highs in May.
(Editing by Nick Tattersall, Ron Askew)