Turkey's Erdogan says 'dark alliances' behind graft inquiry

By Humeyra Pamuk and Ece Toksabay ANKARA (Reuters) - Prime Minister Tayyip Erdogan denounced "international groups" and "dark alliances" on Saturday for entangling Turkey in a corruption scandal that has exposed deep rifts between him and a U.S.-based Muslim cleric who helped him rise to power. Sixteen people, including the sons of two ministers and the head of state-owned Halkbank, were formally arrested on Saturday, local media said, in a corruption inquiry that Erdogan has called a "dirty operation" to undermine his rule. The Turkish leader raised the stakes by accusing unnamed foreign ambassadors of "provocative actions". Some pro-government newspapers had accused the U.S. envoy of encouraging the move against Halkbank - a charge denied by the embassy. "There are extremely dirty alliances in this set-up, dark alliances that can't tolerate the new Turkey, the big Turkey," Erdogan in a speech in the northern town of Fatsa. "Turkey has never been subjected to such an immoral attack." The furor, which has roiled markets, is seen as reflecting a power struggle between Erdogan and his former ally Fethullah Gulen, who wields influence in the police and judiciary. Dozens of police chiefs have been removed from their posts since the detentions of bribery suspects began. "Those who don't see the thief but go after those trying to catch the thief, who don't see the murder but try to defame others by accusing innocent people - let God bring fire to their houses, ruin their homes, break their unity," Gulen said in a recording uploaded to one of his websites on Friday. Erdogan has refrained from naming Gulen as the hand behind the investigation when he blamed an internationally-backed conspiracy. But Gulen's Hizmet (or Service) movement has been increasingly at odds with the prime minister in recent months. "This is an operation ordered by some international groups, and their subcontractors within Turkey are carrying it out, as a step taken against the government. We will not bow down to it," Erdogan said on Saturday. "When we took power 11 years ago, Turkey's national income was $230 billion, now it's more than $800 billion. Can you increase the income so much in a corrupt country?" he demanded, proudly listing highway and airport construction projects his government has implemented during more than a decade in power. "MAJOR POLITICAL STRUGGLE" Erdogan's position is under no immediate threat, but the row between his ruling AK Party and Gulen's Hizmet movement could help decide local elections due in March. "A major political struggle has started in Turkey," said Soner Cagaptay, director of the Turkish Research Program at The Washington Institute. "Ironically, this battle is being fought within the ranks of the governing party." He said the definitive battle would come in March, involving the race for mayor of Turkey's commercial capital Istanbul. "If the Gulen movement can now use its influence among voters and financial base to tilt the race in favor of the opposition, it will prove itself an effective power against Erdogan, as well as helping deliver Istanbul to the left. "If, on the other hand, Erdogan wins Istanbul, despite the Gulen movement, he will emerge as Turkey's most dominant political figure in modern history as well as having potentially subjugated the Gulen movement," Cagaptay said. Erdogan, just as he did when he faced a wave of protests in the summer, has pointed to foreign hands in the crisis. "These recent days, very strangely, ambassadors get involved in some provocative acts," he said, telling them not to meddle and warning: "We do not have to keep you in our country." Several pro-government newspapers had the U.S. Embassy of encouraging the move against Halkbank, saying the United States wanted the bank to stop its dealings with Iran. "Get out of this country," read Yeni Safak's headline, with a photo of U.S. Ambassador Francis Ricciardone. It said the Foreign Ministry was considering declaring him persona non grata. Sources at the Foreign Ministry denied such plans. The U.S. Embassy reacted sharply. "All allegations in news stories are downright lies and slander," it said in a statement. Halkbank's general manager, Suleyman Aslan, was formally arrested alongside Baris Guler, the son of the interior minister, and Kaan Caglayan, the son of the economy minister, CNN Turk and other local media reported. A total of 24 people have now been formally arrested and are awaiting trial on corruption allegations. A court on Saturday ordered the release of 33 others, including the mayor of Istanbul's Fatih district, Mustafa Demir, and the son of the environment minister, local media reported. (Editing by Alistair Lyon)