UPDATE 1-Turkish lira at 4-month low amid emerging market sell-off
(Adds Bank Asya, analyst comment, recasts)
By Dasha Afanasieva
ISTANBUL Aug 6 (Reuters) - Turkey's lira fell to a four-month low as risk aversion over Ukraine was exacerbated by downgrade fears and government pressure for interest rate cuts, all just before Sunday's presidential election.
Islamic lender Bank Asya bucked a fall in stocks, rising more than 4 percent, after Turkish Deputy Prime Minister Ali Babacan said state-run Ziraat Bank could buy it, saying that the government wanted state-owned banks to own Islamic lenders.
Babacan also said in a television interview that the treasury had not received any signal regarding a review of Turkey from ratings agency Moody's due on Friday.
Economy Minister Nihat Zeybekci triggered speculation about the review on Tuesday when he said he had a "negative expectation" for it. Moody's said it does not comment on potential rating actions.
"Europe and U.S. (markets) are selling off the back of Russia concerns and that's bringing down Turkey too," said Erkan Dernek, market strategist at Odeabank. "Moreover, Moody's speculation was the main reason for the sharp sell-off on top of the fall in global equities."
Risk assets fell broadly after NATO said Moscow had amassed around 20,000 troops on Ukraine's eastern border and warned that Russia could use the excuse of a humanitarian or peacekeeping mission to send troops into eastern Ukraine.
The Turkish lira weakened to 2.1632 against the dollar by 1218 GMT, easing off a low of 2.1755 which was its weakest since March. It stood at 2.1463 late on Tuesday.
The main Istanbul share index fell 1.64 percent to 79,321 points, underperforming the broader emerging markets index, which was down 0.79 percent.
Zorlu Enerji surged 13.8 percent after it said it was due a net payment of $338 million from parent company Zorlu Holding as a result of a debt restructuring in the Zorlu group.
Automaker Ford Otosan's shares were down almost 7 percent after it said its net profit fell 41.8 percent year-on-year in the second quarter to 150.9 million lira, well below a Reuters poll forecast of 264.8 million lira.
Analysts said narrowing margins and increasing financing costs were to blame.
Another carmaker, Tofas posted a 23.3 percent rise in second-quarter net profit to 134.7 million lira ($62.5 million) above a forecast of 140.7 million lira. Its shares were down 1.5 percent.
The benchmark 10-year government bond yield rose to 9.62 percent from 9.41 percent at Tuesday's close.
On Tuesday, economy minister Zeybekci renewed his call for interest rate cuts despite recent data showing stubbornly high inflation, putting more pressure on a central bank already struggling to defend its credibility.
"In late August, the central bank is likely to, for the fourth time in a row, yield to (Prime Minister Tayyip) Erdogan's pressure to cut interest rates to stimulate growth, even though inflation risk is mounting," Nordea Bank said in a note.
"Turkey's large external financing need combined with the prospect of less easy monetary policy from the Fed (US Federal Reserve) will curb capital inflows, also lira negative." (Editing by Catherine Evans)