* Turkish PM moots Facebook, YouTube ban amid leaked recordings
* EMs unsettled by lack of progress in resolving Ukrainian crisis
* Turkish Airlines posts 41 pct decline in y-o-y net profit
By Dasha Afanasieva
ISTANBUL, March 7 (Reuters) - The Turkish lira slipped on Friday, rattled by Prime Minister Tayyip Erdogan’s comments on website bans being an option amid attacks from his political foes and as the Ukrainian crisis continued to weigh on emerging market sentiment.
Late on Thursday, Erdogan said Turkey could ban Facebook and YouTube after local elections on March 30, saying they have been abused by his political enemies with a series of voice recordings posted on the Internet purportedly revealing graft in his inner circle.
A series of public challenges to the ruling AK Party have emerged since the launch of a corruption probe on Dec. 17, exposing a deep rift between Erdogan and former ally, U.S.-based cleric Fethullah Gulen and rattling investors.
“We can attribute the lira’s negative differentiation to the politics, namely the prime minister’s remarks from last night which is seen to indicate that political tension will remain elevated even after the local elections,” said Gokce Celik, analyst at Finansbank.
The political crisis in Ukraine capped gains in emerging markets after Russian President Vladimir Putin said Moscow and Washington were still far apart on the situation in Turkey’s neighbour.
“With vulnerabilities such as large external balances and political risks, Turkish assets tend to react more negatively when emerging market sentiment deteriorates,” Celik said.
The lira slipped to 2.1890 against the dollar by 0935 GMT from 2.1825 late on Thursday. The 10-year benchmark bond yield rose to 10.6 percent from 10.54 percent on Thursday.
The main Istanbul share index was up 0.18 percent at 64,119.97 points, underperforming the wider emerging markets index, which rose 0.17 percent.
The biggest drag on the index came from flag carrier Turkish Airlines which posted a net profit of 683 million lira ($313 million) in 2013, down 41 percent from a year earlier and sharply below an average forecast of 947 million lira in a Reuters poll.
Meanwhile airports operator TAV Havalimanlari Holding got a boost after saying it will bid for the tender of Dalaman Airport operating rights on Friday.
In addition, investors were cautious ahead of the U.S. non farm payrolls report (1330 GMT), which was forecast to show an increase of around 149,000 in February, according to a Reuters survey of economists, up from the weather-depressed gains of 113,000 in January and 75,000 in December.
Jobs data from the world’s biggest economy is eyed closely by emerging markets for any clues on the pace of Federal Reserve tapering. Turkey is vulnerable to cuts in asset buying because of its gaping current account deficit, which is financed through cheap capital inflows.
Last month Fed chair Janet Yellen made it clear she would not make any abrupt changes to U.S. monetary policy, saying the central bank was on track to keep reducing its stimulus even though the labour market recovery was far from complete.
“The importance of the non farm payroll, on its own, has diminished since the tapering actually started, but it is still a closely watched indicator,” Celik said.