ANKARA, Aug 15 (Reuters) - Attempts to unite Turkey's centre left amid an electoral challenge from a party seen by some as an Islamist threat appeared to be collapsing on Thursday when a key party said it planned to campaign under its own flag.

Financial markets have watched closely as former economy minister Kemal Dervis, architect of a multi-billion dollar IMF rescue plan, has tried to forge an alliance from the newly- formed New Turkey Party (YTP) and Turkey's oldest party, the Republican People's Party (CHP).

"There has been enough political debate. Today is decision day," Republican People's Party (CHP) leader Deniz Baykal told reporters in Ankara. He called on Dervis and his allies to unite under the CHP banner.

Dervis, seen by financial markets as the nearest the country can have to a guarantee the IMF pact will be implemented after polls, said he would make an announcement later on Thursday.

Speculation has grown on markets that Dervis, long expected to join the YTP led by former foreign minister Ismail Cem, would throw in his political lot with the CHP.

He is a long-time friend of Baykal.

DERVIS URGED TO "STEP ABOARD THE BUS"

"This call is to Kemal Dervis. This call is to Ismail Cem, to all the other colleagues," Baykal said. "We want to embrace everyone in the CHP."

"Let's for once abandon the politics we have become accustomed to," Baykal said.

The CHP is not represented in the current parliament. It failed at 1999 polls to clear the 10 percent barrier to enter the legislature -- a victim of the divisions that afflict Turkey's centre and centre-left.

But opinion polls consistently suggest it is one of the few parties close to clearing that barrier at the November 3 polls. The CHP would offer Dervis the kind of nationwide campaigning organisation and established name the new YTP does not possess.

YTP appeared on Thursday to have abandoned hope of an alliance. Its central board took a decision to run in the November 3 elections under its own flag and not in alliance with any other party.

The decision brought selling on some Turkish financial markets, where a wide alliance is seen as the main hope to offset the Justice and Development Party (AKP) which many fear might try to water down Turkey's $16 billion IMF loan deal.

The AKP regularly polls between 15 and 20 percent of the vote, far above its nearest rivals who are all in danger of losing their seats in parliament. AKP is viewed with suspicion by markets and the powerful army because of its Islamist roots, though it insists it does not mix religion and politics.

The army led a campaign that pressed the country's first Islamist led government from power in 1997 after a year. Markets fear an AKP government could compromise on the IMF plan and could come into conflict with an orthodox establishment.

Turkish stocks fell two percent and the lira weakened to 1,640,000 to the dollar.

"The YTP statement looks like a response to Baykal's announcement about an alliance. It opened the way for selling," said Tolga Ari of Seker Investment.

Dervis, credited by urban liberals with helping stabilise Turkey's crisis-hit economy, met his YTP allies Ismail Cem and Husamettin Ozkan late on Wednesday to discuss a possible alliance with Baykal's party.

Baykal, in his call to Dervis to join him, said his party was going to annual celebrations at a central Turkish holy shrine for Muslims of the Alevi sect in Hacibektas and Dervis and Cem would be welcome.

"The CHP bus leaves at five. They should make their decision before then. Their seats on the Republican People's Party bus are ready. We'd love to see them on the CHP bus," he said. Nampa-Reuters 1121 150802 WEB story ENDS (NAMPA 151125)