ISTANBUL, May 31 (Reuters) - Turkey's lira tumbled on Wednesday to a fresh record low against the dollar as President Tayyip Erdogan prepared to decide the shape of his new cabinet and the direction of economic policy after an election triumph.

Former economy chief Mehmet Simsek, who is highly regarded by financial markets for his orthodox policy credentials, is almost certain to be included in the cabinet, either as finance minister or as a vice president, four senior officials said.

A key role for Simsek could signal a departure from Erdogan's years-long unorthodox policy, underpinned by interest rate cuts in the face of high inflation, which has led to the lira's persistent decline.

In its third successive day of losses, the lira weakened nearly 1.6% to a record low of 20.75 against the U.S. currency, taking its losses this year to nearly 10%.

It later firmed slightly, standing at 20.7150 at 1149 GMT.

The currency's implied volatility gauges climbed on Wednesday with the one-year measure rising to 45.46% - its highest in at least a decade and a half, data from Fenics showed.

The focus now is on Erdogan's announcement of the new cabinet appointments, including top economic policy management, which is expected to come by Saturday at the latest.

"I don't know whether he will be the new finance minister or not, but any credible name is important to give a signal to the market that there will be change. Action speaks more than intention," said Cagri Kutman of KNG Securities.

"If you have Mehmet Simsek or a similar person in charge that is a big move. But then the market will be curious about the first move of the economic team – will there be more orthodox policies or will they do something worse or will they do something to buy time and see how it goes?"

First-quarter economic growth stayed buoyant, with gross domestic product expanding 4.0%, despite the impact of February's earthquakes, high inflation and a cost of living crisis. GDP also grew 0.3% from the previous quarter.

Turkey's main stock index BIST100 (.XU100) was up about 0.3% at 1148 GMT, while the banking index (.XBANK) rose 0.26%.

Reporting by Ezgi Erkoyun; Additional reporting by Karin Strohecker; Editing by Tom Hogue, Clarence Fernandez and Emelia Sithole-Matarise

Our Standards: The Thomson Reuters Trust Principles.

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