The central bank raised interest rates by around 500 basis points at an emergency meeting on Tuesday despite government's opposition, stunning markets and causing a spike in the battered currency.

Turkey's lira was trading at 2.2725 against the dollar by 1540 GMT, although still off a record low of 2.39 reached on Monday.

The lira fell 17 percent in 2013 and extended its slide this year as a graft scandal hit the government, heightening investor concern about political stability just as a gradual end to U.S. monetary stimulus knocked appetite for emerging market assets.

Turkish households and firms are hoarding dollars, suggesting they have little faith the lira will be spared a further sell-off despite the bold move on rates.

The yield on the 10-year benchmark bond fell to 10.34 percent from 10.39 percent a day earlier.

The main Istanbul stock index <.XU100> closed down 1.34 percent at 61,858.21 points, underperforming a 0.45 percent fall in the main global emerging market index <.MSCIEF>.

(Reporting by Seda Sezer; Editing by Toby Chopra)