Turkish Military gives a warning to the Parliament

The main ISE National 100 index lost 8% of its value upon opening and the lira dropped as much as 4% in early trading.

Protesters in support of secularism in Turkey are concerned that Mr Gul has remained loyal to his Islamic roots.

Mr Gul failed to win election in a first round parliamentary vote, though he has said he will stand in the second round of voting on 2 May.

On Friday, the army accused the government of tolerating radical Islam and vowed to defend secularism.

Higher risk

Turkey's army has toppled three governments since 1960, and analysts said there were fears that it could intervene again.

The threat of army intervention in Turkey's politics has unnerved the country's financial markets, which last week had reached historic highs supported by an appetite for emerging market assets and the prospect of Turkey's accession to the European Union.

The ISE National 100, Turkey main share index, fell 3745.18 points, or 8%, to 43,116.13.

The lira also headed south to 1.3882 against the US dollar after trading at 1.32 on Friday - its strongest level for nearly a year.

"We would expect a sharp downward market correction... as investors recognise that political risks have notched up significantly," said Bear Stearns economist Timothy Ash.

The staunchly secularist opposition party boycotted the first-round presidential vote because it was not consulted on Mr Gul's selection as the candidate for the Justice and Development (AK) Party.

They have asked the country's constitutional court to invalidate the vote on the basis that not enough lawmakers were present.

The court is expected to deliver a verdict by Wednesday, when the second round of voting is due to take place.

Market support

Analysts expect market volatility to continue while political uncertainty prevails.

But they are generally confident that a sharp sell-off akin to that seen last May, when the markets were hit by global inflation fears, is not on the cards.

Turkey's economy has been recovering from financial turmoil in 2001, and a number of reforms since then have helped to sustain growth.

The current government has also managed to keep its finances in check as part of its plans to cut national debt levels and meet the economic requirements of the International Monetary Fund and those needed to join the European Union.

It looks like crise turned to benefit...