The Central Bank of the Republic of Turkey (CBRT) lowered the upper limit for the FX maintenance facility within the reserve options mechanism to 40 percent from 45 percent on Monday, providing approximately $2.2 billion of liquidity to banks in an effort to curb the rise of the U.S. dollar.

The move came as the Turkish lira hit new record lows against the dollar and euro as strains caused by a diplomatic spat with the United States compounded and overall economic outlook.

The lira, which last week hit five to the dollar for the first time in history over the tit-for-tat and almost meaningless sanctions in jailed American Pastor Andrew Brunson, was trading at 5.19 to the dollar, a loss of 1.8 percent on the day.

Washington last week imposed sanctions on Erdoğan's justice and interior ministers, saying they played leading roles in organizations responsible for Brunson's arrest. Erdoğan said Turkey would retaliate by freezing assets of the U.S. interior and justice ministers.

Against the euro, the lira was trading at 6, a loss of 1.7 percent on the day, having earlier tested the 6.0 ceiling for the first time.

The currency was also pressured by an announcement by the Office of the U.S. Trade Representative that it was reviewing Turkey's eligibility of Generalized System of Preferences (GSP), a scheme that allows the export of certain products to the U.S. duty free. The move that could affect some $1.66 billion of Turkish exports, including motor vehicles and parts, jewelry, precious metals and stone products.

The review, announced Friday, came after Ankara imposed retaliatory tariffs on U.S. goods in response to American tariffs on steel and aluminum.

It was unclear whether any large, listed Turkish firms would be hit. Auto parts suppliers tend to be smaller, unlisted companies. Istanbul's main index fell 1.7 percent.

"This review will impact many companies exporting to the United States, but it will have a very small impact on the income streams of these companies," said an analyst at a local brokerage, who declined to be named, to Reuters.

Data from the U.S. International Trade Commission showed that the biggest beneficiary of the duty-free program were auto and auto parts makers, with exports of nearly $250 million last year. That was followed by precious stones and metals, at nearly $210 million.

A USTR spokeswoman said the review was unrelated to the case of Brunson, an evangelical pastor who has lived in Turkey for more than two decades and is charged with supporting the Gülenist Terror Group (FETÖ) and the PKK.