ISTANBUL: The Turkish lira weakened and bond yields rose on Monday as investor confidence was shaken by Syria's shooting down of a Turkish jet, which prompted Ankara to call a NATO meeting for Tuesday to agree a response to Syrian President Bashar al-Assad.
Turkish Foreign Minister Ahmet Davutoglu accused Syria of shooting down one of its military reconnaissance jets in international airspace without warning.
The lira fell to 1.8245 against the dollar by 0646 GMT, weakening from 1.8151 late on Friday.
"Turkey's response so far has been very restrained, which makes us think that Turkey will seek diplomatic sanctions through multinational channels, rather than acting unilaterally in a heavy handed manner," said Finansbank chief economist Inan Demir.
He said there seemed to be broad consensus among Turkish foreign policy experts that the incident does not constitute a "casus belli", and that this view was shared by officials.
"Our baseline is that Turkey will seek a formal apology and indemnity from Syria, most likely through UN and NATO mechanisms, and refrain from responding "in kind." Such a course of action should keep the fallout from the incident contained in terms of both political and market implications," Demir said.
The yield on the two-year benchmark bond inched up to 8.89 percent, from a previous close at 8.80 percent. It had fallen to 8.78 earlier on Friday, its lowest since October 2011, on expectations the central bank will ease its monetary stance.
Istanbul's main share index fell 0.98 percent to 59,860 points, underperforming a 0.48 percent fall in the MSCI emerging markets index.
"We expect to see the shooting down of the Turkish fighter jet by Syria posing a drag on sentiment on retaliation uncertainty. A softer tone by Turkey thus far helps the issue remain relatively muted and not spilling too much onto financial markets," analysts at Ekspres Invest wrote in a note.
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