ISTANBUL Turkish stocks and the lira currency edged higher on Friday after prosecutors released three retired generals suspected of plotting a coup, easing fears of a showdown between the government and military that had hit markets.
But the threat of confrontation between Prime Minister Tayyip Erdogan's Islamist-rooted AK Party and the secular armed forces remained, as investigations continued into the three men, who were among 50 officers detained at the start of the week.
"The crisis has come to an end for now, or tension has been lowered, or at least has been postponed for a while," said Mehmet Ali Birand, a leading commentator.
"Now, we have to wait. We'll see what happened yesterday more clearly in the next weeks or months."
Turks and foreign investors fear Erdogan's party could be on a collision course with the military, whose leaders see themselves as guardians of Turkey's secular constitution.
The military has overthrown four governments in Turkey in the past 50 years and with many of its officers still in detention, and more than 30 charged with crimes, tensions remain high and markets nervous.
Erdogan on Friday blamed the media for fanning alarm among investors.
"I am talking to the media bosses," Erdogan told an AK Party function in a televised speech. "No one has the right to turn a country's economy on its head, we won't allow it, because it's clear the state to which the economy has come.
His party is banking on an economic recovery after last year's deep recession to win over voters ahead of an election due early next year.
Investors were encouraged by a decision from prosecutors on Thursday evening to release former heads of the air force and navy, along with a former deputy chief of the general staff.
C.A. Cheuvreux analyst Simon Quijano-Evans called the move "another step on the way to de-escalation."
Istanbul's benchmark stock index was up 1 percent in early afternoon trade, partially reversing the previous day's losses, while bonds edged up and the lira recovered to 1.5390 to the dollar, having closed at 1.5520 on Thursday.
HISTORY OF COUPS
Despite Turkey's history of military coups, most people believe the generals would not dare challenge the popular AK party and destroy newfound confidence in democracy.
Turkey is both a NATO member and a candidate to join the European Union, and its Western allies want to see it mature as a democracy.
Ankara's lead negotiator for EU membership said this week's developments showed Turkey was on the right path.
"I think what is happening in Turkey is a process of Turkey's Europeanization and normalization," Egeman Bagis told a news conference in the Latvian capital of Riga.
Analysts, however, fear that politics appear increasingly polarized between the secular, conservative nationalists who represent the old guard and the AK Party, which has won over investors with market-friendly reforms despite its roots in political Islam.
Before Friday's rebound, the lira had lost over 3 percent since trouble erupted last week between the government and the judiciary, traditionally the other main bastion of secularism.
The government has threatened constitutional changes to reform the judiciary, raising speculation that Turkey's chief prosecutor could make a renewed attempt to ban the AK Party, having tried and failed two years ago.
(With reporting by Ibon Villelabeitia, Daren Butler, and Nerijus Adomaitis in Riga, editing by Noah Barkin)