Erdogan threatens to unveil graft accusations against rival

ANKARA (Reuters) - Turkish Prime Minister Tayyip Erdogan threatened on Friday to t divulge a file of corruption allegations against the main opposition candidate for Istanbul mayor, raising the stakes in a political battle after a graft investigation implicating his own government. The opposition accused Erdogan of bullying and defied him to make public any accusations he cared to level. Erdogan, speaking to party members in the capital Ankara, also accused a key business leader of "treason" for saying the government's efforts to reform the judiciary might unnerve investors and deter foreign capital from coming to Turkey. Erdogan called on Kemal Kilicdaroglu, chairman of the main opposition Republican People's Party (CHP), to disclose what he called corruption allegations in a party file against Mustafa Sarigul, the CHP's candidate for Istanbul mayor in March muncipal elections. "I'm giving you until Sunday. If you don't disclose the corruption file on the Istanbul municipal candidate, I will," Erdogan said in comments aired live on television. He did not make clear what such a file would contain. CHP Deputy Chairman Haluk Koc, responding to Erdogan, said: "No one is holding you back. The security forces, judiciary and police are yours. The CHP is here, Sarigul is here, disclose whatever you know. "Bring it on. Does extortion suit a prime minister? CHP has never bowed down to bullies. It won't take a step back." Erdogan also accused Kilicdaroglu himself of involvement in the leak of a 2010 sex tape that forced the resignation of his predecessor at the CHP, Deniz Baykal. Erdogan did not elaborate. Turkey's popular leader sees a police investigation into corruption and bribery charges that came to light last month and included the arrest of family members of cabinet ministers and businessmen close to the government as a "coup plot" against the ruling AK Party, in power since 2002. He has responded by removing thousands of police officers and about 120 prosecutors from their posts and reassigned them and by pushing through legal changes that tighten his control over the judiciary. On Thursday, Muharrem Yilmaz, chairman of the business group Tusiad, said such legal changes may not comply with European Union norms and could raise concerns about the rule of law. Erdogan lashed out at Yilmaz, saying such a warning amounted to a threat against the government. "You can't say, 'International capital won't come.' If you do, it's treason against this country. "They are threatening their own government by saying foreign investment won't come ... We will take a stance against those who take a stance against the AK Party," Erdogan said. The political turmoil has weighed on Turkish financial markets, with the lira plumbing record lows. But capital outflows have been relatively limited, with Thursday's successful sale of a $2.5 billion eurobond issue seen as a vote of confidence from foreign investors. (Reporting by Ayla Jean Yackley; editing by Ralph Boulton)