ANKARA (Reuters) - Turkey's lira weakened on Thursday, as comments from a senior presidential adviser that an interest rate increase could be possible were not enough to arrest a slide in confidence that has sent the currency to a series of record lows.


International investors have battered the lira this year, sending it down some 7 percent already in 2017 - on top of a double-digit decline last year. President Tayyip Erdogan has characterized the sell-off as an attack on the economy by outside forces.


Investors say they are worried by the crackdown that followed a failed coup in July and unnerved by Erdogan's stance on monetary policy. He has declared himself an "enemy" of interest rates, favoring cheap credit to spur the economy.


"The central bank could also use the rate tool, it's also on the table. The central bank's hands are not tied," Erdogan adviser Cemil Ertem said in an interview on broadcaster NTV. His comments briefly bolstered the currency. However, the lira <TRYTOM=D3> later lost steam and was down more than 1 percent in late trade at 3.8396.


Market participants say the central bank needs aggressive rate increases to put a floor under the lira and clearly show the markets it is independent. Erdogan has said the bank is independent but he is free to criticize it.


In a report this week, analysts at UBS said interest rate hikes of at least 2 percentage points may be needed to anchor the currency in the next month or two. The bank's benchmark repo rate currently sits at 8 percent, while the overnight lending rate - the highest of the multiple rates it uses to set policy - is at 8.5 percent.

Separately, Deputy Prime Minister Mehmet Simsek said the central bank would do "what is necessary" on interest rates.

The central bank has rolled out a series of measures since last week - culminating in the introduction of forex swap auctions on Wednesday - in an effort to support the currency.

The moves have significantly reduced volatility in the markets, Ertem said.

(Reporting by Nevzat Devranoglu and Ece Toksabay; Writing by David Dolan; Editing by Daren Butler and Alison Williams)