* Banking watchdog lowered limits on some FX trade
* Currency's weakness could have silver lining for growth
* Lira worst performer among EMs in December (Adds comment, graphic, details on interventions, GDP forecasts)
By Jonathan Spicer and Daren Butler
ISTANBUL, Dec 19 (Reuters) - Turkey's lira slid to its weakest level in daily trade since May on Thursday after the government's latest heavy-handed effort to curb market volatility exacerbated lingering concerns over Ankara's deteriorating relationship with Washington.
The currency, still vulnerable after last year's crisis in which it shed nearly 30% against the dollar, was on track for its fifth straight day of losses and was the worst performer among emerging market peers.
While authorities have taken several unorthodox steps to stabilize the lira, it is down 11% so far in 2019. Continued weakness, on the other hand, could help Turkey limit imports and achieve the government's ambitious 5% GDP growth forecast for 2020.
"Government authorities want a competitive lira," an economy official who requested anonymity told Reuters.
The lira on Thursday weakened as far as 5.9425 against the dollar, which itself was sliding after President Donald Trump was impeached by the U.S. House of Representatives. At 1200 GMT it stood at 5.9390.
The lira hit 6.47 in a "flash crash" on Aug. 26 in Asian trade, when liquidity was very low. Excluding that, it was last at these levels during a selloff in May that had echoes of last year's crisis, which tipped Turkey's economy into recession.
Late on Wednesday, a regulator said it would rein in some derivatives trading by lowering the limit on banks' currency swaps, forwards and options with non-residents with a maturity of up to seven days, in which local banks receive forex at maturity.
The new limit will be 10% of the bank's regulatory capital, down from 25%.
"This step will make it harder to sell the lira and take a short position," said Tera Yatirim economist Enver Erkan, adding the intervention in swap markets could hurt investor sentiment. The "goal is to reduce exchange rate volatility," he added.
The move followed a pattern of tightening control over financial markets. In late May for example the BDDK banking watchdog imposed a settlement delay for FX purchases by individuals of more than $100,000.
The lira has been the worst performer among peers in December, a reflection on worsening ties with NATO ally Washington.
Trump and Turkish counterpart Tayyip Erdogan say they are close. But Trump, who has mostly resisted U.S. congressional efforts to sanction Turkey this year, on Wednesday became only the third U.S. president to be impeached.
Ankara's purchase of Russian S-400 defences and its military incursion in Syria have prompted Washington to move towards imposing sanctions. The Senate this week passed a bill that calls for sanctions and prohibits shipping F-35 jets to Turkey.
Strained U.S. ties helped spark last year's collapse in the lira, which many analysts saw as over-valued given the Turkish economy's heavy reliance on imports and cheap foreign funding.
If the currency remains close to 6 versus the dollar, analysts say the economy would be more likely to achieve the Treasury ministry's goal of maintaining a current account deficit of 1.2% next year amid a strong growth rebound.
The authorities may be "using this supportive global backdrop...to manage the TRY weaker in order to help support growth/current account position," Tim Ash of BlueBay Asset Management wrote in a note.
The lira's main FX volatility gauge was at its highest since late October on Thursday. The main BIST 100 share index rose 0.1%.
Additional reporting by Ebru Tuncay, Nevzat Devranoglu and Marc Jones; Editing by Dominic Evans and Alexandra Hudson