* Political risk rattles Turkey's financial markets

* Sharp drop on stock market triggers halt in trading

* Bonds see biggest sell-off since March

By Marc Jones

LONDON, May 21 (Reuters) - Trading on Turkey's stock

market was halted and government bonds fell sharply on Thursday

after one of the country's top courts dealt the latest blow to

the main political opposition party.

The court annulled the Republican People's Party congress in

2023 at which its chairman, Ozgur Ozel, was elected. This

fuelled a 6% drop in Turkey's BIST 100 equity index

which triggered a market-wide circuit breaker.

Turkish sovereign bonds sold off by as much as 1.4 cents

, which for many was the

biggest fall since late March, after the ruling.

Kieran Curtis at fund manager Aberdeen in London said the

court ruling to replace Ozel with the CHP's former, less popular

chairman Kemal Kilicdaroglu, could signal early elections.

While the record-low lira, which has effectively

been on a managed descent for years, remained steady, the

U.S.-traded iShares MSCI Turkey ETF slumped almost 10%

and the cost of debt insurance through credit default swaps

rose.

Curtis said the chances of early elections had been rising

given the Iran war-driven spike in inflation that has all but

closed the door on interest rate cuts and a stimulus drive that

could have been vote winners for President Tayyip Erdogan.

"Erdogan would much rather run against Kilicdaroglu than

anyone else in the CHP, so it would be consistent with a

scenario where they go for early elections," Curtis said.

Hours before the court ruling, finance minister Mehmet

Simsek, architect of Turkey's return to more orthodox economic

policies in recent years, had attended an investor event in

London alongside Turkish central bank governor Fatih Karahan.

Turkish bonds have underperformed the main Emerging Market

bond indexes this year and domestic 10-year yields, a proxy for

the government's borrowing costs, are at a record 33% high.

Thomas Christiansen, head of EM fixed income at UBP, said

Turkey's bond markets have tended to ride out these kinds of

politically driven moves in recent years.

"If you do get massive protests on the streets and social

unrest you could have a more sizable or longer-lasting impact,"

Christiansen said, adding: "But it's too soon to tell".