(Recasts after central bank decision, adds central bank data)
ISTANBUL, Oct 24 (Reuters) - Turkey's lira weakened on Thursday after the central bank cut its policy rate more than expected, reversing course after firming a day earlier to a two-week high when Washington lifted sanctions on Ankara.
The currency, which had been under pressure recently due to potential repercussions from Western allies over Ankara's operation against the Kurdish YPG militia in northeastern Syria, returned on Wednesday to levels before the incursion.
However, the lira declined again after the central bank cut its policy rate by 250 basis points to 14% on Thursday, compared to a median estimate in a Reuters poll of a 100 basis point cut.
The lira stood at 5.7630 against the dollar at 1500 GMT, some 0.5% weaker than Wednesday's close of 5.7350. Earlier, it weakened as far as 5.7795.
The central bank has now cut its policy rate by 1,000 basis points since July. Inflation fell to 9.26% in September, which leaves a real interest rate of around 4% after Thursday's cut.
The lira could come under renewed pressure if that margin narrows in November and December, when inflation is expected to bounce back once the so-called base effects wear off.
"The central bank's decision put pressure on the lira. However, the pressure was limited compared to the cut" due to lower interest rates globally and a recent reduction in geopolitical risks, said the forex desk manager of a Turkish bank.
Separately, data from the central bank showed that forex holdings tmsnrt.rs/2Yx07KI including precious metals of local corporates and individuals rose to a record high of $194.26 billion as Oct. 18.
Turks have flocked to hard currencies since a currency crisis last year slashed the value of the lira by 30%.
The main share index was up 0.5%, while the banking index rose 0.32%.
Reporting by Ali Kucukgocmen Editing by Gareth Jones