By Nevzat Devranoglu
ANKARA, Nov 4 (Reuters) - Turkey's lira hit a record low against the dollar and stocks tumbled on Friday after authorities detained lawmakers from the pro-Kurdish opposition party, heightening fears about security and political stability in the EU candidate nation.
A car bomb rocked the largest city in the mainly Kurdish southeast, killing eight people and injuring more than 100, near the police station in Diyarbakir where some of the pro-Kurdish politicians were being held in a terrorism probe.
The detention of the two leaders of the Peoples' Democratic Party (HDP), parliament's second-largest opposition grouping, and at least nine of its lawmakers sparked concern from rights groups and the European Union about the crackdown on dissent under President Tayyip Erdogan.
In a sign of the climate, no traders or analysts at domestic brokerages would speak to Reuters on the record.
"The reports of an increased crackdown and talk of the reintroduction of the death penalty raise concerns about the future trajectory of FDI flows and even EU accession," said Manik Narain, an emerging markets strategist at UBS in London.
Erdogan has said he would approve a reintroduction of the death penalty if parliament votes for it. Turkey formally abandoned capital punishment in 2002 as part of its EU accession process. Germany said on Friday reintroducing it would spell the end to Turkey's talks to join the bloc.
The lira fell to a historic low of 3.15 against the U.S. dollar. It has weakened more than 7 percent this year, making it the fifth-worst performer against the dollar among 25 emerging market currencies.
The benchmark BIST 100 stock index slid 2.5 percent to 74,749 by the close of morning trade. The cost of insuring Turkish government debt against default hit its highest in more than a month.
Turkey depends on investment to fund its current account deficit, which is one of the biggest in the G20, and service its foreign debt, requiring more than $200 billion a year.
"It's the classic problem of a current account deficit country, you need the constant generosity of foreign investors to finance the deficit and that gets compromised when negative shocks hit," UBS's Narain said.
Shares of banks were hit, with Isbank, Turkey's largest listed lender, sliding 2.7 percent to 4.73 lira. Rival Garanti Bank fell 3.4 percent to 7.78 lira.
Erdogan and Prime Minister Binali Yildirim have repeatedly called on lenders to lower rates to spur consumption and bolster the flagging economy. Isbank said this week it had cut its lending rates, and other banks followed suit.
"We are seeing selling pressure on the lira today and on the credit markets with sovereign cash and CDS widening, and the pressure on Turkish banks," said Trieu Pham, a strategist at MUFG Securities in London.
"We have priced in a lot of negative headlines already, but looking forward I remain somewhat concerned at this moment. I think Turkish assets can only perform if the negative headlines stop or if there are positive headlines." (Additional reporting by Sujata Rao-Coverley and Helen Reid in London; Writing by David Dolan; Editing by Nick Tattersall/Jeremy Gaunt)
Our Standards: The Thomson Reuters Trust Principles.