ANKARA, Feb 25 (Reuters) - Turkish assets lost ground on Tuesday as voice recordings leaked on the Internet purporting to implicate Prime Minister Tayyip Erdogan in graft allegations raised political uncertainty weeks ahead of local elections.
Reuters could not verify the authenticity of the audio tracks, purportedly of Erdogan telling his son to dispose of large sums of money on the day news broke of a graft inquiry into his government. Erdogan's office said they were "completely untrue".
The lira weakened to 2.2238 against the dollar in early trade on Tuesday, from 2.1750 late on Monday. It was at 2.210 at 1715 GMT, still far off the record low of 2.39 against the dollar hit in January during an emerging market sell-off.
The graft allegations, along with a big current account deficit, have left Turkish assets particularly exposed to the selloff in emerging markets.
The recordings escalated the political tensions, analysts said, and curbed the demand for fixed coupon bonds while pushing up the yield in Treasury auctions.
Turkey's Treasury sold a Feb. 24, 2016 benchmark bond at a yield of 11.18 percent at an auction on Tuesday, above a forecast of 11.12 percent.
"The demand for the fixed-coupon bonds with 2 and 10 year maturity were low. Despite the relatively quiet trading in global bond markets, investors are still cautious about investing in the fixed-coupon lira denominated instruments because of the domestic uncertainties," said Ugur Kucuk of brokerage Is Yatirim.
The Istanbul share index closed down 3.21 percent at 62,1234.84 points, underperforming the wider emerging markets index .MSCIEF, which edged down 0.19 percent.
The 10-year benchmark bond yield TR270923T0=IS rose to 10.54 percent from 10.23 percent on Monday. (Reporting by Humeyra Pamuk and Nevzat Davranoglu; Editing by Robin Pomeroy)