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By Daren Butler and Jonathan Spicer

ISTANBUL (Reuters) -President Tayyip Erdogan's political opponents said on Sunday that his call to expel the ambassadors of 10 Western allies was a bid to divert attention from Turkey's economic difficulties, while diplomats hoped the expulsions might yet be averted.

On Saturday, Erdogan said he had ordered the envoys be declared 'persona non grata' for seeking philanthropist Osman Kavala's release from prison.

By Sunday evening, there was no sign that the foreign ministry had yet carried out the instruction, which would open the deepest rift with the West in Erdogan's 19 years in power.

The diplomatic crisis coincides with investor worries about the Turkish lira's fall to a record low after the central bank, under pressure from Erdogan to stimulate the economy, unexpectedly slashed interest rates by 200 points last week.

The lira hit a fresh all-time low in early Asian trade, weakening 1.6% to 9.75 per dollar in a move that bankers attributed to Erdogan's comments. It has lost almost a quarter of its value so far this year.

Kemal Kilicdaroglu, leader of the main opposition CHP, said Erdogan was "rapidly dragging the country to a precipice".

"The reason for these moves is not to protect national interests but to create artificial reasons for the ruining of the economy," he said on Twitter.

'SEEN THIS FILM BEFORE'

Kavala, a contributor to numerous civil society groups, has been in prison for four years, charged with financing nationwide protests in 2013 and with involvement in a failed coup in 2016. He denies the charges and has remained in detention while his trial continues.

"We've seen this film before," said opposition IYI Party deputy leader Yavuz Agiralioglu. "Return at once to our real agenda and the fundamental problem of this country - the economic crisis."

Erdogan said the envoys had failed to respect Turkey's judiciary and had no right to demand Kavala's release.

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Sinan Ulgen, chairman of the Istanbul-based think tank Edam and a former Turkish diplomat, said Erdogan's timing was incongruous as Turkey was seeking to recalibrate its foreign policy away from episodes of tension in recent years.

"I still hope that Ankara will not go through with this," he tweeted, describing the move as unprecedented among NATO allies. "The foreign policy establishment is working hard to find a more acceptable formula. But time running out."

Erdogan has not always acted on threats.

In 2018, he said Turkey would boycott U.S. electronic goods in a dispute with Washington. Sales were unaffected. Last year, he called on Turks to boycott French goods over what he said was President Emmanuel Macron's "anti-Islam" agenda, but did not follow through.

CABINET MEETING

One diplomatic source said a decision could be taken at Monday's cabinet meeting and that de-escalation was still possible. Erdogan has said he will meet U.S. President Joe Biden at next weekend's G20 summit in Rome.

Erdogan has dominated Turkish politics for two decades but support for his ruling alliance has eroded ahead of elections scheduled for 2023, partly because of high inflation.

While the International Monetary Fund projects economic growth of 9% this year, inflation is more than double that, and the lira has fallen 50% against the dollar since Erdogan's last election victory in 2018.

Emre Peker, from the London-based consultancy Eurasia Group, said the threat of expulsions at a time of economic difficulties was "at best ill-considered, and at worst a foolish gambit to bolster Erdogan's plummeting popularity".

"Erdogan has to project power for domestic political reasons," he said.

In a joint statement on Oct. 18, the ambassadors of Canada, Denmark, France, Germany, the Netherlands, Norway, Sweden, Finland, New Zealand and the United States called for a just and speedy resolution to Kavala's case, and for his "urgent release".

The European Court of Human Rights called for Kavala's immediate release two years ago, saying there was no reasonable suspicion that he had committed an offence.

Soner Cagaptay from the Washington Institute for Near East Policy tweeted: "Erdogan believes he can win the next Turkish elections by blaming the West for attacking Turkey -- notwithstanding the sorry state of the country's economy."

(Writing by Daren ButlerEditing by Dominic Evans and Giles Elgood)

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Erdogan's critics say demand for expulsions is distraction from economy woes - Yahoo News