(Bloomberg) -- After stabilizing its currency and staving off a full-blown crisis this week, Turkey faces the prospect of renewed turmoil with a looming court decision on the American detainee at the heart of a dispute with Washington.

U.S. Treasury Secretary Steven Mnuchin urged President Recep Tayyip Erdogan’s government on Thursday to free American pastor Andrew Brunson or face more sanctions. An appeals court in the coastal city of Izmir is set to rule by Saturday on a bid by Brunson’s lawyer to release him.

While reassuring pledges by Treasury and Finance Minister Berat Albayrak on a global investor conference call Thursday and a crackdown on betting against the currency have helped the lira bounce by 10 percent against the dollar this week -- after plunging 27 percent the previous week -- the prospect of renewed conflict with U.S. has markets on edge.

"It still looks like we’re headed to more conflict,” Kathy Jones, chief fixed-income strategist at Charles Schwab Inc. "Neither side seems to be backing down yet."

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The lira was up 1.2 percent higher at 5.7678 per dollar at 9:34 a.m. in Istanbul on Friday, paring its loss for the year to 35 percent.

Market turmoil was triggered this month when the U.S. first sanctioned two ministers in Erdogan’s government over the continued detention of Brunson for what Turkey says was his role in a failed 2016 coup. It is now set to make its biggest weekly gain since 2001 on the back of a stealth interest rate hike by the central bank and a limit by banking regulators on swaps that cut down on short selling lira.

Erdogan, who has rejected concerns that Turkey might need a rescue package from the International Monetary Fund, also expanded his diplomatic outreach this week, speaking to leaders of Germany and France and striking a deal with Qatari emir which will see an inflow of $15 billion into the economy.

With Turkish companies weighed down by increasingly costly foreign-currency debt and confronting double-digit inflation, another flash point is a scheduled review by S&P Global Ratings on Turkey’s credit worthiness. The rating agency already holds Turkey at BB-, three levels below investment grade.

"The market turmoil in Turkey is the latest in a series of fragilities amplified by gradually tightening financial conditions this year," according to Wei Li, BlackRock Inc.’s head of iShares EMEA strategy in London. "Investors should prepare for further bouts of volatility ahead."

To contact the reporter on this story: Onur Ant in Ankara at oant@bloomberg.net

To contact the editors responsible for this story: Heather Harris at hharris5@bloomberg.net, James Hertling, Brian Swint

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