ISTANBUL – Turkey’s lira currency posted a record low close at 1,723,000 to the dollar yesterday amid worries over the economic fallout of war in Iraq and a deadlock in talks with the USA on flyover rights to Iraq for US warplanes. Brokers said investor nerves were racked by the lack of a deal on opening Turkey’s air space, which they hoped might release billions of dollars in aid for Turkey’s economy, tentatively recovering from a punishing financial crisis in 2001. The lira had closed at a previous record low of around 1,710,000 to the dollar on Monday, when lingering hopes for the aid package began to fade. Parliament on Thursday approved the deployment of Turkish troops to northern Iraq and the use of its air space for US planes, but Ankara has yet to give the final go-ahead. «The war could be short and swift but there are concerns about the standoff with the United States on the overflights issue,» said one Istanbul analyst who asked not to be named. «If this is resolved, there will be some relief and the rest will depend on the government’s measures on the economic front.» The main stock index dipped 2.47 percent to close at 9,406.56 points, its lowest close since October 16, after slumping as low as 7.2 percent in the morning. Yields on benchmark March 3, 2004 debt rose to 67.97 percent from a previous 66.55. US and Turkish officials negotiated through the night on technical details over the air corridor deal as the war unfolded in neighboring Iraq and US aircraft stood ready to fly. The two sides took a break in talks yesterday with Turkish officials saying there were snags concerning air space use and any movement of Turkish troops in northern Iraq, which the USA has said it wants under its command. Turkish markets have sunk since a few weeks ago when markets thought Turkey would secure up to $30 billion in US grants and loan guarantees in return for help with the Iraq campaign, including allowing up to 62,000 US troops into the country. But the Justice and Development Party (AK) government let that offer slip from its grasp, acting too late and offering too little to win the cash from its close NATO ally. The lira currency has lost around 7.25 percent of its value against the dollar since March 1, when Parliament rejected the US request to set up a «northern front» against Iraq from Turkey’s southern border. Impact on US relations Investors also fear a Turkish military insurgency into northern Iraq could spark clashes with Iraqi Kurds and raise tensions in Turkey’s own southeast, where its army has fought a decades-long battle with Kurdish militants costing the lives of over 30,000 people, most of them Kurds. They also worry what effect the recent disagreements with Washington might have on Turkish-US relations. The White House opposes any unilateral Turkish move into northern Iraq. Washington has pressed Brussels to warm to candidate Turkey’s EU membership drive and is less critical than Europe of Turkey’s crackdown on Kurdish separatists. Turkish markets have fallen since optimism at the AK’s sweeping election victory in November turned to concern over the its ability to implement a $16 billion IMF pact, loans which have been delayed by slow progress on economic reforms.