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* Turkey's lira pares losses, still near record lows
* South African rand, Russia's rouble also hit by lira crisis
* Investors fear contagion risks, Asian shares a sea of red
* Some analysts see current sell-off a buying opportunity
By Swati Pandey
SYDNEY, Aug 13 (Reuters) - Emerging market currencies sold off heavily on Monday and Asian stocks were knocked lower as Turkey's lira plunged to all-time lows on concerns over its diplomatic rift with the United States and the risk of capital flight.
Investors fear the lira's sell-off could have a ripple effect in global financial markets with the euro, the South African rand and Mexico's peso already dented by Turkey's crisis.
The lira TRYTOM= pared some of its losses after Turkey's central bank said it had lowered reserve requirement ratios for banks. It also said it would provide whatever liquidity banks needed and take all necessary measures to maintain financial stability. the lira was still down more than 9 percent on the day at 6.9743 per dollar and within spitting distance of a record low around 7.2400 hit it early Asian trade. This time last month the lira was at 4.8450.
The South African rand ZAR=D3 skidded to a level not seen since mid-2016 and Russia's rouble RUB= slumped to a near 2-1/2 year trough.
The Indian rupee slid to an all-time trough INR=D3 , while the Indonesian rupiah IDR=D3 hit its lowest in almost three years, prompting intervention from the country's central bank. wave of selling was triggered on Friday when U.S. President Donald Trump announced tougher sanctions on Turkish steel and aluminium exports, causing a spike in EM foreign exchange volatility gauges. Russian markets also felt the heat last week after surprise sanctions by Washington. is premature to conclude how long and how much the impact will expand," said Kim Doo-un, Seoul-based economist at KB Securities.
"I expect emerging countries, which have a thorny relationship with Trump administration, could be the first ones (to) suffer from capital outflows. A strong dollar will cause some dissonance and the trend will continue throughout this week."
Safe haven currencies and bonds rallied. The dollar index .DXY was near a one-year top of 96.505 while the Japanese yen JPY= climbed for a second straight day to a 1-1/2 month top.
However, the sell-off is not limited to emerging markets: the euro EUR= stumbled to more than one-year lows on worries about European bank exposure to Turkey. BBVA BBVA.MC , Italy's UniCredit CRDI.MI and France's BNP Paribas BNPP.PA have some of the largest operations in Turkey among the euro zone banks.
The fear of contagion reverberated across markets with every Asian share index in the red on Monday.
At 0410 GMT, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS had fallen 1.7 percent while the MSCI International EM index .MSCIEF was down 2.0 percent. MKTS/GLOB
Still, some analysts expect Asia to ride out the storm thanks to ample foreign exchange reserves and prudent fiscal and monetary policies, while others see the current turmoil as an opportunity to pick up cheap assets.
"Asia should not see any contagion effect fundamentally due to the ongoing crisis in Turkey as the region does not have a meaningful exposure to the country," analysts at Singapore's DBS said in a note.
"We would see any meaningful correction in bond prices on the back of the Turkey developments alone, as a buying opportunity."
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