LONDON, June 7 (Reuters) - Turkey's lira tumbled by as much as 7% on Wednesday, hitting a fresh low of 23.17 against the U.S. dollar in a sign that the government of newly re-elected President Tayyip Erdogan was loosening its tight grip on the currency.

FIXED INCOME: Turkey's sovereign dollar-denominated bonds reversed early gains to trade slightly lower on the day.

STOCKS: Turkey's benchmark index gained more than 3.5% while the banking sub-index rose 3.78%.

ANALYST COMMENTS:

JON HARRISON, MANAGING DIRECTOR, EMERGING MARKET MACRO STRATEGY, TS LOMBARD

"If there is indeed a monetary policy pivot coming shortly as widely expected, then the orthodox approach would be to allow the market to find a "fair value" for the lira before raising interest rates, which could be what we are seeing now. However, I am still a little sceptical that Erdogan will completely abandon his previous intervention in economic policy, but we will see."

PIOTR MATYS, SENIOR FX ANALYST, IN TOUCH CAPITAL MARKETS

"Today's sharp fall in the value of the lira is an indication that the currency is allowed to trade far more freely, as we indicated is likely to be the case after President Erdogan and his AKP (party) remained in charge following elections held last month.

"Following the elections, the Erdogan administration has no incentive – or at least its commitment is weaker – to keep the lira artificially stable. Essentially, we are witnessing USDTRY adjusting to Turkish reality of very high inflation and monetary policy which is too loose."

ULRICH LEUCHTMANN, HEAD OF FX RESEARCH, COMMERZBANK

"It smells like the beginning of a lira crisis.

"Unless we see lasting change Turkey could be caught in that spiral of devaluation and rising inflation, and it is impossible to say where the endpoint is.

"The endpoint is whenever we will see a change in monetary policy, when Erdogan - very openly and to everyone - will change his mind, or because another kind of roadblock will emerge. Markets will consider if at some point the problems just become so enormous that there is no way around the IMF anymore. But until then - it is impossible to calculate a fair value for the Turkish lira."

LIAM PEACH, SENIOR EMERGING MARKETS ECONOMIST, CAPITAL ECONOMICS

"The lira has fallen by around 6% against the dollar today, to 23/$, and it is now down by 15% since the start of May. But further falls lie in store and the size of the required currency adjustment will be substantial."

TERESA ALVES, GLOBAL MARKETS ANALYST, GOLDMAN SACHS

"The Lira has weakened sharply this morning and USD/TRY is now trading above 23.

"Last Friday, we revised our USD/TRY forecasts higher to reflect the faster pace of depreciation with our 12-month forecast now at 28. This estimate reflects inflation differentials and external pressures on the Lira and also assumes a smooth pace of depreciation. However, we think our 12-month forecast could be reached sooner if the FX adjustment continues to be more front-loaded." (Reporting by Amruta Khandekar, Siddhart S, Karin Strohecker and Libby George; Editing by Kirsten Donovan)