(Adds U.S. comment, banks)
By Tuvan Gumrukcu and Ali Kucukgocmen
ANKARA/ISTANBUL, Aug 8 (Reuters) - Turkey's lira weakened against the dollar on Wednesday, hit by concern about President Tayyip Erdogan's grip on monetary policy and uncertainty about whether a meeting between Turkish and U.S. officials could heal a wide diplomatic rift.
A Turkish delegation will meet with top officials from the U.S. State Department on Wednesday, part of a visit to Washington this week to address friction caused by Ankara's trial of an American evangelical pastor.
The delegation, headed by Turkish Deputy Foreign Minister Sedat Onal, will meet U.S. officials led by Deputy U.S. State Deputy Secretary John Sullivan, the State Department said. The delegation is also due to meet with officials from the U.S. Treasury.
The row has heightened investor concern over Turkey, where investors are most worried by what they see as Erdogan's influence over the central bank, which has not been as aggressive in raising interest rates as investors have hoped.
The president, a self-described "enemy of interest rates", wants to see borrowing costs lowered to fuel credit, new construction and growth. The appointment of his son-in-law as finance minister has deepened the concern.
"The central bank is behind the curve; it remains behind the curve," said Guillaume Tresca, senior emerging market strategist at Credit Agricole. "The lira keeps depreciating and we are seeing that the central bank is not ready to act."
The lira stood at 5.2880 against the dollar at 1223 GMT, more than 1 percent weaker on the day. It had gained on Tuesday on reports the delegation would visit Washington .
The currency has fallen some 27 percent this year and plunged as much as 5.5 percent on Monday to 5.4250 per dollar, an all-time low and its biggest intraday drop in nearly a decade. That decline came after Washington said it was reviewing access to the U.S. market for Turkey's exports.
Relations between Turkey and the United States have been strained by differences over Syria and by the trial in Turkey of Andrew Brunson, the pastor, for supporting a group Ankara blames for a 2016 abortive putsch. Brunson denies the charge. The United States is also seeking the release from detention of three locally employed embassy staff.
Washington last week imposed sanctions on Erdogan's justice minister and interior ministers, saying they played leading roles in organisations responsible for Brunson's arrest. Erdogan has said Turkey would retaliate against the sanctions.
While the rift between the NATO allies has hammered the lira, dollar debt issues by Turkish banks continued to slip further, reflecting investor concern that the currency deterioration would erode capital buffers at banks.
On Wednesday, some Yapi Kredi and Halkbank paper hit record lows, while other Turkish banks, such as Akbank, were also sold off, according to Tradeweb data.
The cost of insuring exposure to Turkish bank debt rose on Wednesday, with five-year credit default swaps (CDS) for Yapi Kredi up 1 basis point (bp) from Tuesday's close to 460 bps, according to IHS Markit, a record high.
Turkish stocks were up 1 percent. The BIST index of blue-chip stocks is down around 40 percent in dollar terms this year, according to Thomson Reuters data -- second only to Venezuela as the worst performer among some 30 emerging market stock indices. (Additional reporting by Claire Milhench in London and Lesley Wroughton in Washington; Editing by David Dolan, Larry King and Raissa Kasolowsky)