One day after an escalating diplomatic spat, in which both the US and Turkey halted the issuance of non-immigrant visas to each other's citizens following last week's arrest by Turkey of a US consulate worker, on Monday Turkey issued another detention warrant for a second US consulate employee, Ahaber newspaper reports.

The market reaction to the rising diplomatic tensions has been dramatic, sending the Turkish lira crashing the most since the July 2016 failed "coup" attempt on Turkey's president Erdogan, while local stocks and bonds tumbled in sympathy, the local Borsa Istanbul 100 index sliding, and now in correction territory having dropped more than 10% from its late August peak. The news of the second arrest have led to some further weakness in the Lira this morning, which crashed to a record low against a basket of currencies including the euro and the dollar.

Turkish NTV broadcaster reported that the consulate worker is still being sought by security officials, while his wife and child are being questioned by Turkish police. The reason for the arrest warrant has not yet been revealed. The warrant follows the arrest of Metin Topuz, who as we reported last week, was a Turkish citizen who worked at the US general consulate in Istanbul. He is alleged to have ties to exiled Turkish cleric Fethullah Gulen, whom Ankara blames for a failed coup attempt last summer and literally everything else that is wrong with Turkey.

The US Embassy in Turkey said that it was "deeply" disturbed over the "baseless, anonymous allegations" undermining "this longstanding partnership" between NATO allies. In its turn, Ankara said that the employee of the US Consulate General in Istanbul arrested by Turkish authorities had no diplomatic immunity.

A court has ruled that Topuz will remain in custody while his alleged links to Gulen are investigated. it was Topuz's arrest that was the last straw, and prompted the US to suspend most visas for Turkish citizens. Hours laster, Ankara reciprocated in a tit-for-tat move.

That said, Ankara has yet to confirm the media reports. The Turkish justice minister said earlier he had no information about a new warrant being issued.

Media speculations of another arrest warrant comes amid the deterioration of relations between NATO allies over the arrest of a US consulate employee in Istanbul over alleged links to Islamic cleric Gulen, accused by Ankara of being behind the failed coup attempt in 2016. On Sunday, the US said it has suspended visa services in Turkey in all its diplomatic facilities in the country to "reassess Turkey's commitment to security" of the US mission. Shortly after, Ankara responded with tit-for-tat measures and suspended visa services in the US, while the following day the Turkish Foreign Ministry summoned the undersecretary of the US embassy over the issue.