Turkey and the US have exchanged new threats of sanctions, keeping alive a diplomatic and financial crisis threatening the economic stability of the Nato country.

Turkey’s lira fell again after trade minister Ruhsar Pekcan said her government would respond to any new trade duties, which Donald Trump threatened in an overnight tweet.

The US president is taking issue with the continued detention in Turkey of American pastor Andrew Brunson, who faces 35 years in prison on espionage and terror-related charges.

Mr Trump wrote in a tweet late on Thursday: “We will pay nothing for the release of an innocent man, but we are cutting back on Turkey!”

Turkey’s state-run Anadolu news agency said a high court in Izmir had upheld a lower court’s decision earlier this week to keep Mr Brunson under house arrest. It also rejected an appeal for his travel ban to be lifted, Anadolu reported.

US Treasury chief Steven Mnuchin earlier said the US could put more sanctions on Turkey.

The US has already imposed sanctions on two Turkish government ministers and doubled tariffs on Turkish steel and aluminium imports.

Turkey retaliated with 533 million dollars (£419 million) of tariffs on some US imports — including cars, tobacco and alcoholic drinks — and said it would boycott US electronic goods.

“We have responded to (US sanctions) in accordance to World Trade Organisation rules and will continue to do so,” Ms Pekcan told reporters on Friday.

Recep Tayyip Erdogan
Recep Tayyip Erdogan has refused to allow the central bank to raise interest rates (Presidential Press Service/AP)

Turkey’s currency, which had recovered from record losses against the dollar earlier in the week, was down about 5% against the dollar on Friday.

Turkey’s finance chief tried to reassure thousands of international investors on a conference call on Thursday, in which he pledged to fix the economic troubles.

He ruled out any move to limit money flows — which is a possibility that worries investors — or any assistance from the International Monetary Fund.

Investors are concerned that Turkey’s has amassed high levels of foreign debt to fuel growth in recent years, and as the currency drops, that debt becomes more expensive to repay, leading to potential bankruptcies.

Also worrying investors has been President Recep Tayyip Erdogan’s refusal to allow the central bank to raise interest rates to support the currency, as experts say it should.

He has tightened his grip since consolidating power after general elections this year.