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UPDATE 2-Turkish lira slides, reversing efforts by state banks

Nevzat Devranoglu and Daren Butler

* Lira firmed to below 6 against dollar late on Friday

* Sources said state banks sold some $4.5 bln last week

* Investors concerned over re-run of Istanbul election (Adds quote, shares, details)

ANKARA/ISTANBUL, May 13 (Reuters) - The Turkish lira tumbled on Monday as investor concerns about political uncertainty resurfaced, reversing gains from late last week when, sources told Reuters, state banks sold billions of dollars to support the currency.

The lira weakened to as far as 6.10 against the dollar, dipping from a close of 5.9955 on Friday. On Thursday it hit its weakest level in more than seven months at 6.2460.

The lira had firmed overnight, touching a level of 5.9610, before retreating as morning trade increased.

A treasury desk dealer at one bank said lira moves in thin overnight trade were being reversed in more robust trade during the day, as was seen occasionally over the last year when the currency weakened sharply overnight.

"We are seeing pricing returning to normal levels when trading volumes increase," the dealer said.

Turkish state banks sold around $4.5 billion last week, two sources told Reuters, including a flurry of selling late on Friday, to stem declines triggered by a decision last week to re-run Istanbul's mayoral election.

In a separate official effort to support the currency on Thursday, the central bank tightened policy by funding the market at a higher rate.

The lira has lost as much as 15 percent against the dollar this year, with the latest weakness driven by the decision to annul the Istanbul vote on March 31, which the main opposition party narrowly won over President Tayyip Erdogan's AK Party.

The main stock index fell 0.82 percent.

Investors were closely watching two bond auctions which the Treasury was to hold on Monday: a new issue of a 12-month zero coupon bond and a tap of a 5-year CPI-indexed bond.

Finance Minister Berat Albayrak said on Sunday in an interview with broadcaster CNN Turk that the economy will hopefully overcome the impact of a currency crisis last year with just two quarters of contraction.

The economy contracted 3.0 percent in the fourth quarter of 2018 from a year earlier, after a currency crisis knocked some 30 percent off the value of the lira last year. Economists expect two more quarters of contraction year-on-year.

Data from the central bank on Monday showed the current account deficit narrowed to $589 million in March, less than a Reuters poll forecast of $984 million and down from $733 million in February. (Editing by Jacqueline Wong and Jonathan Spicer)