Lehman's bankruptcy filing shatters Turkish lira, shares on Monday

The main Istanbul stock exchange index (ISE) fell 5.27 percent to 35,081 after Monday trading.

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The benchmark bond dated April 14 of Turkey, 2010 yield rose to 19.21 percent from 18.81 percent on Friday.

Lehman Brothers, the fourth-largest bank in the United States, announced on Sunday night that it would be seeking protection from its creditors after suffering billions of dollars of losses through the mortgage market. A possible acquisition deal by Barclays also fell through.

"The long lasting deadlock in the credit crisis has created a negative mood which has had an unsettling effect on the markets...This trend will continue until the negative factors come to an end," Haluk Burumcekci,  chief economist of Turkey's Fortis Bank told Hurriyet English.

Investor confidence is very low at the moment and this is why efforts to boost the markets are not having the expected impact, Burumcekci also said. "Investors believe that nothing will be workable at the moment."

However, there were reasons of not drawing picture of the situation as terrific, Inan Demir, analyst of Finansbank told Turkish Daily News.

“First of all, Lehman Brothers was in a bottleneck and its bankruptcy has been expected since months. Therefore, there was enough time to be prepared for the markets. Moreover, the Merrill Lynch sale removed the stress item over the markets," he said.

"But on the other hand, one of the world’s biggest banks, Lehman Brothers, bankrupted! Such a thing has never been experienced and we face a huge financial uncertainty right now,” he added.

The collapse of Lehman Brothers also had a ripple effect across international financial markets. The diminishing appetite for risk drove investors toward the relative safety of government debt.

U.S. stocks fell sharply at the opening bell on Monday, the Dow Jones industrial average was down 98.52 points, or 0.86 percent, at 11,323.47. The Standard & Poor's 500 Index was down 14.30 points, or 1.14 percent, at 1,237.40. The Nasdaq Composite Index was down 57.17 points, or 2.53 percent, at 2,204.10.

European stocks markets fell on the heels of their Asian counterparts. Share prices in Australia, Singapore and Taiwan all dropped 3 to 4 percent, while Indian stocks fell 5 percent.

The FTSE-100 share index is down 3.37 percent in London, the Paris CAC-40 was off 4.47 percent and Germany’s DAX 30 index of blue chips sagged 3.18 percent.

The dollar tumbled 2.7 percent versus the yen, setting the Japanese currency on track for its biggest daily gain since early 2002.

Fed fund futures jumped to indicate a 86 percent probability of a U.S. interest rate cut to 1.75 percent on Tuesday from 2 percent currently.

Over the weekend another bank, Merrill Lynch, is said to have agreed to a take over by rival Bank of America for $50 billion.�

Adding to the mix of ingredients feeding the latest financial storm, American International Group Inc, one of the world's largest insurers, was reported to have asked the U.S. Federal Reserve for a $40 billion bridge loan, and the Fed expanded its liquidity provision facilities.