January 16, 2014 / 8:47 AM / 4 years ago

UPDATE 1-Turkish lira weakens to record low on graft probe, U.S. data

* Lira touches trough of 2.2118 against dollar

* Stream of corruption probe accusations unnerves market

* Strong U.S. economic data also pressures lira (Adds detail)

By Dasha Afanasieva

ISTANBUL, Jan 16 (Reuters) - Turkey's lira weakened to a record low beyond 2.2 against the dollar on Thursday, hit by the twin impacts of a corruption scandal dogging the government and robust U.S. data.

Dawn raids and arrests in mid-December led to the resignation of three ministers and removal of hundreds of police officers, shaking the political establishment.

Fresh allegations emerging daily in local media and social networks were adding to political uncertainty and a feeling of unease on financial markets.

"We are seeing the most serious challenge for the government through their period of rule, over a decade now," Gokce Celik, analyst at Finansbank said.

"As the accusations draw closer to the inner circle (of the ruling AK Party) they arouse more concerns regarding political stability especially in the run-up to local elections in just over two months."

The lira was also affected after a Federal Reserve Bank of New York gauge of manufacturing in the state jumped to its highest level in 20 months in January, boosting the dollar.

The data suggested that the U.S. economic recovery is not losing steam, supporting the case for a faster cut in U.S. bond buying.

Turkey is particularly vulnerable to reductions in U.S. stimulus because it depends on cheap capital inflows to finance its gaping current account deficit, running at 7 percent of gross domestic product.

The lira hit a new low of 2.2118 against the dollar in early trade before recovering slightly to 2.2085 at 0804 GMT, from 2.1880 late on Wednesday.

Turkey's two-year benchmark bond yield rose 18 basis points in initial trade to 10.13 percent from 9.95 percent at Wednesday's close.

The yield on the 10-year benchmark bond rose to 10.32 percent from 10.18 percent late on Wednesday.

The main Istanbul index was down 1.41 percent at 67,176.81 points and lagged the main global emerging market index which fell 0.11 percent. (Editing by John Stonestreet)

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