ISTANBUL: The Turkish lira weakened against the dollar in early trade on Friday, hit by a rise in US bond yields which has helped erase virtually all the gains the currency has made this year.

The lira stood at 7.4300 against the dollar at 0500 GMT, weakening 1.4% from a close of 7.33 on Thursday, when it tumbled as much as 3.5%. It ended last year at 7.44 but had rallied strongly until mid-February.

A rout in global bond markets spooked investors amid fears the losses could trigger distressed selling in other assets. Yields on the 10-year Treasury note were up some 40 basis points for the month in the biggest move since 2016 and investors dumped emerging market currencies.

The lira had rallied 20% since November when the finance minister and central bank governor were replaced and President Tayyip Erdogan pledged a new market-friendly economic era.

But it reversed course this week, ending a three-month rally as the government defended former finance minister Berat Albayrak's policies.

Albayrak oversaw some unorthodox policies, which included state banks selling some $130 billion in dollars during his two years in office, which sharply depleted Turkey's FX reserves. The currency also shed about half its value in the same period.