(Bloomberg) — The lira hovered near its weakest level since August, while Turkish stocks and government bonds fell, as Ankara’s military campaign in Syria threatened to trigger U.S. penalties.The currency fell past the 5.89-per-dollar mark, before paring losses, as Turkish F-16 warplanes and artillery struck American-backed Kurdish forces in northeast Syria. Republican Senator Lindsey Graham introduced a bipartisan bill to sanction Turkey in response to the incursion.The losses came despite what traders have described as aggressive dollar sales by state banks to stem the rout, and threatened to undermine any future effort by the central bank to loosen monetary policy.In a sign of the repricing of the rates outlook, the yield on Turkey’s two-year government note jumped more than 120 basis points to 15.25%, a three-week high on a closing basis. The benchmark stock gauge slipped for a fourth day, led by Akbank TAS, one of the nation’s largest listed lenders, and oil refiner Turkiye Petrol Rafinerileri AS.The threat of punitive action from Washington has revived fears that the estranged NATO allies are headed for a fresh diplomatic standoff that could deal a blow to Turkey’s $722 billion economy. The bill introduced in congress on Wednesday targets Turkish leaders, including President Recep Tayyip Erdogan, and strategic sectors such energy and the military.“Metaphorically speaking, fire is going to rain over Turkish skies” if the sanctions bill is approved, said Cristian Maggio, the head of emerging-market research at TD Securities in London. “These sanctions would hit the economy hard, limit the military’s access to weaponry and ammunition. It shouldn’t be taken lightly.”2018 CrisisLast year, the U.S. sanctioned key Turkish officials because of a dispute over a detained American pastor, fueling a currency crisis that dragged the Turkish economy into its first recession in a decade. The lira has tumbled about 3% against the dollar this week, breaking past a key support at around 5.845 per dollar on Wednesday.“We have already seen some reaction,” said Viktor Szabo, an investment director at Aberdeen Asset Management in London who helps oversee $14 billion in emerging market debt. “But if sanctions passed I think we should see much more. Turkey has a much lower ability to withstand sanctions than Russia.”Still, it’s “highly uncertain” whether the bill will be approved, he said.The lira traded 0.2% stronger at 5.8605 per dollar as of 5:32 p.m. in Istanbul.State lenders sold at least $2 billion of foreign-exchange to support the lira this week, according to three people with knowledge of matter who asked not be named because the information isn’t public. The banks sold dollars on Thursday too, the people said.(Updates prices throughout)–With assistance from Tugce Ozsoy and Robert Brand.To contact the reporters on this story: Constantine Courcoulas in Istanbul at firstname.lastname@example.org;Asli Kandemir in Istanbul at email@example.com;Kerim Karakaya in Istanbul at firstname.lastname@example.orgTo contact the editors responsible for this story: Onur Ant at email@example.com, ;Dana El Baltaji at firstname.lastname@example.org, Alex Nicholson, Paul WallaceFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.