An early rally in Turkish stocks following last week's slump fizzled out on Monday with tensions in the country running high after a court jailed Istanbul Mayor Ekrem Imamoglu pending a trial.

The Borsa Istanbul benchmark index ended last week down 16.6%, its worst drop since the global financial crisis in October 2008.

The index was 0.8% lower on the day at 1126 GMT, having risen around 3% in early trading. The banking sub-index also reversed earlier gains to stand 1.26% lower, after falling more than 26% last week.

A Turkish court on Sunday jailed Istanbul Mayor Ekrem Imamoglu, President Tayyip Erdogan's main political rival, pending trial on corruption charges in a move that sparked the country's biggest protests in more than a decade.

Imamoglu's detention last Wednesday roiled markets, sending the lira, stocks and bonds sharply lower, and prompted an outcry from the main opposition party, European leaders and hundreds of thousands of protesters, who criticise the actions against him as politicised and undemocratic.

Analysts expect a prolonged period of political turmoil and uncertainty.

"The protests mark the most significant and widespread public reaction in over a decade, making the trajectory of events difficult to predict," said Wolfango Piccoli at Teneo.

"Once again, President Erdogan's political agenda has inflicted serious damage on Turkey's economic outlook."

The country's capital markets board on Sunday banned short selling on the Istanbul bourse and eased share buyback limitations and equity ratio requirements until April 25.

The lira traded at 37.9815 against the U.S. dollar, compared with Friday's close of 37.9500 after falling 3.5% last week. In a meeting with bank executives on Sunday, the central bank said it would use all instruments effectively and decisively to maintain stability.

Turkey's international sovereign bonds also clawed back some of their losses, with the 2045 maturity up 0.7 cents to be bid at 83.7 cents on the dollar, Tradeweb data showed, after falling more than 3 cents last week.

(Reporting by Canan Sevgili, editing by Karin Strohecker and Kirsten Donovan)