Turkey on Friday threatened to respond if the United States levied further sanctions over the detention of an American pastor which has sparked a diplomatic standoff and battered the Turkish currency.
As Turkey's government sought to reassure markets after the lira had been sent into a tailspin by the deepening spat, Washington said the next raft of sanctions could be on the way.
US Treasury Secretary Steven Mnuchin warned Thursday that the United States would impose more sanctions unless pastor Andrew Brunson, described by US President Donald Trump as a "hostage", was released.
Turkey's Trade Minister Ruhsar Pekcan responded to the new threat on Friday.
"We've already responded based on the World Trade Organisation rules and will continue to do so," Pekcan was quoted as saying by the state-run Anadolu news agency.
Brunson's detention since October 2016 on terror-related charges has soured relations between the two NATO allies and sent the lira tumbling.
The lira, which earlier this week traded at well over seven to the dollar, had rebounded slightly over the last three days but on Friday it lost nearly five percent of its value and was quoted at 6.1 against the dollar.
Trump on Thursday tweeted: "Turkey has taken advantage of the United States for many years. They are now holding our wonderful Christian Pastor, who I must now ask to represent our Country as a great patriot hostage."
He said: "We will pay nothing for the release of an innocent man, but we are cutting back on Turkey!"
- 'Moderately convincing'-
The latest US announcement came after Turkish Finance Minister Berat Albayrak, the son-in-law of President Recep Tayyip Erdogan, sought to soothe markets during an unprecedented teleconference on Thursday with hundreds of foreign investors from the United States, Europe to Asia.
He said Turkey would emerge "stronger" from the currency crisis and ruled out an IMF bailout.
William Jackson, chief emerging markets economist at London-based Capital Economics said in a note that Albayrak gave a "moderately convincing performance" during the call.
But he suggested that Turkish "policymakers only really seem to have done the minimum needed".
"Even in his call with investors, Albayrak said the fall in the lira was out of line with fundamentals, not acknowledging why confidence in Turkey evaporated," he said.
"And he seemed to downplay the risks in the corporate and banking sector posed by large foreign currency debts. These could still crystallise over the coming weeks and months, potentially making the crisis more acute."
Analysts say sharp hike in interest rates is needed to stop the declining value of lira, but Erdogan's government is opposed to any rate hike in order to stimulate growth.
Last week, Trump tweeted that his administration was doubling aluminium and steel tariffs for Turkey, which promoted Ankara to sharply hike tariffs on some US products.
Erdogan has remained defiant in the face of the crisis with Washington, saying Turkey could turn to new alternative markets.