By Daren Butler, Humeyra Pamuk and Jeff Mason
ISTANBUL/WASHINGTON (Reuters) - The United States on Wednesday ruled out removing steel tariffs that have contributed to a currency crisis in Turkey if Ankara frees a U.S. pastor, as Qatar pledged $15 billion in investment to Turkey, supporting a rise in the Turkish lira.
The White House stance appeared to give Turkish authorities little incentive to work for the release of Andrew Brunson, a pastor on trial in Turkey on terrorism charges and whose case Turkish officials have always said was a matter for the courts.
While the Brunson dispute appeared far from being resolved, Turkish President Tayyip Erdogan got a shot in the arm from Qatar's Emir, who approved a package of economic projects, investments and deposits after the two met in Ankara.
The Qatari money will be channelled into banks and financial markets, a Turkish government source told Reuters.
The move by Turkey's Gulf ally offered further support to a lira rally after the Turkish central bank tightened liquidity and curbed selling of the currency.
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The lira has lost nearly 40 percent against the dollar this year, driven by worries over Erdogan's growing control over the economy and his repeated calls for lower interest rates despite high inflation.
The dispute with NATO partner the United States, focused on a tit-for-tat tariff row and Turkey's detention of Brunson, helped turn the currency's steady decline into meltdown.
It touched a record low of 7.24 to the dollar early on Monday, rattling global stock markets and threatening the stability of Turkey's financial sector.
President Donald Trump doubled tariffs on Turkish metals exports to the United States last week prompting Turkey, which says it will not bow to threats, to raise tariffs on U.S. cars, alcohol and tobacco by the same amount on Wednesday.
The White House called the Turkish response a step in the wrong direction.
Speaking to reporters in Washington, White House spokeswoman Sarah Sanders also made clear that the United States had no plan to remove the steel tariffs if Brunson were released though it could remove those imposed on two senior Turkish officials.
Earlier this month The United States imposed sanctions on two top officials in Erdogan's Cabinet in a new attempt to get NATO ally Turkey to turn over Branson, who is accused of backing a coup attempt against Erdogan two years ago.
"The tariffs that are in place on steel will not be removed with the release of pastor Brunson. The tariffs are specific to national security," Sanders said. "The sanctions, however, that have been placed on Turkey are specific to pastor Brunson and others that we feel are being held unfairly, and we would consider that at that point."
Turkey is ready to discuss its issues with the United States as long as there are no threats, Turkey's Foreign Minister Mevlut Cavusoglu said.
Despite the political tensions, the lira rebounded some 6 percent on Wednesday, strengthening to around 6.0 to the dollar.
There was also optimism about better relations with the European Union after a Turkish court released two Greek soldiers pending trial. Cavusoglu said ties with the bloc, which have been strained in recent years, were on a firmer basis and had started normalising.
A banking watchdog's step to limit foreign exchange swap transactions also helped the currency.
"They are squeezing lira liquidity out of the system now and pushing interest rates higher," said Cristian Maggio, head of emerging markets strategy at TD Securities.
"Rates have gone up by 10 percent ... The central bank has not done this through a change in the benchmark rates, but they are squeezing liquidity, so the result is the same," Maggio said.
The lira firmed as far as 5.75 against the dollar on Wednesday and stood at 6.030 at 1758 GMT.
"Remarkable turnaround," Tim Ash, Bluebay Asset Management senior emerging markets analyst wrote in a client note after the banking watchdog BDDK cut the limit for Turkish banks' forex swap, spot and forward transactions with foreign banks to 25 percent of equity.
"They are killing offshore lira liquidity to stop foreigners shorting the lira," he said.
Turkey's Capital Markets Board (SPK) later said it reduced leverage ratios until September 3 on new positions in foreign exchange markets to avoid fluctuations.
The finance minister will seek to reassure international investors on Thursday in a conference call for which a ministry official said some far 3,000 people had signed up.
The chief executive of Turkey's Akbank said the banking sector remained strong and the measures taken to support the market had started to have an impact, adding there was no withdrawal of deposits.
SPAT WITH UNITED STATES
A decree signed by Erdogan doubled Turkish tariffs on U.S. imports of passenger cars to 120 percent, alcoholic drinks to 140 percent and leaf tobacco to 60 percent. Tariffs were also doubled on goods such as cosmetics, rice and coal.
The duties were raised in response to the U.S. administration's "deliberate attacks on our economy," Vice President Fuat Oktay said.
The United States was the fourth largest source of imports to Turkey last year, accounting for $12 billion, according to IMF statistics. Turkey's exports to the United States, its fifth-largest export market, were $8.7 billion.
The two countries have been at loggerheads over diverging interests in Syria, Ankara's ambition to buy Russian defence systems and Andrew Brunson, a pastor on trial in Turkey on terrorism charges.
Trump has repeatedly asked for Brunson's release. On Wednesday, a court in Izmir, where Brunson is on trial, rejected his appeal to be released from house arrest. An upper court had yet to rule on the appeal, his lawyer told Reuters.
Erdogan has said Turkey is the target of an economic war, and made repeated calls for Turks to sell their dollars and euros. On Tuesday, he said Turkey would boycott U.S. electronic products.
In another high-profile case, a Turkish court freed Taner Kilic, the local chair of Amnesty International, a researcher from the rights group said.
(Additional reporting by Claire Milhench, Marc Jones and Martinne Geller in London, Orhan Coskun in Ankara; Writing by Dominic Evans, Arshad Mohammed; Editing by John Stonestreet)