Turkish stocks tumbled more than 5 percent on Thursday afternoon after Prime Minister Tayyip Erdogan refused to back down in the face of protests.
"If you say: 'I will hold a meeting and burn and destroy', we will not allow that," he told reporters on Thursday during a press conference on a visit to Tunisia.
Erdogan said "terror groups" had manipulated the demonstrations, which began last week in Istanbul's Taksim square in protest against the development of a new shopping mall.
After Thursday's fall, Turkey's benchmark share index is on the edge of a bear market, having fallen 19 percent since May 22.
Timothy Ash, head of emerging markets (excluding Africa) at Standard Bank, told CNBC on Thursday that his bank had advised investors to reduce positions until the political situation becomes clear.
The Turkish lira weakened on Thursday to 1.9050 against the dollar from 1.8850, and two-year bond yields jumped to 6.78 percent from 6.42 percent.
(Read More: Turkey Violence: More Complex Than Arab Spring)
- Reuters contributed to this report