Ly is a digraph of the Latin alphabet, used in Hungarian.
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Ly is the twentieth letter of the Hungarian alphabet. Its Hungarian name is ellipszilon /ɛlːipsilon/ or elly /ɛjː/ (sometimes spelled ejj). Nowadays it represents the same phoneme /j/ (palatal approximant) as the Hungarian letter j, but historically it represented the different phoneme /ʎ/ (palatal lateral approximant).
It is used this way only in Hungarian. In Hungarian, even if two characters are put together to make a different sound, they are considered one letter, and even acronyms keep the letter intact.
The combination lj (considered two separate letters, L and J) is also common in Hungarian, and is in fact pronounced /ʎ/ by many speakers. However, even this is sometimes subject to the same reduction to /j/ that ly has been, mainly if it is at the end of a word.
Originally the digraph letter ly was used to represent the palatal lateral /ʎ/, just like the digraph letter ny is still used to represent the palatal nasal /ɲ/. However, in the eastern dialects, as well as in the standard dialect, the phoneme /ʎ/ lost its lateral feature and merged with /j/ (this process is akin to Spanish yeísmo); this way, the Hungarian letter ly came to be pronounced the same as the Hungarian letter j. In the western dialects, /ʎ/ lost its palatal feature and merged with /l/ (alveolar lateral approximant). In the northern dialects, the phoneme /ʎ/ has been preserved.[1]
The digraph ly was also used for the sound /ʎ/ in Croatian alphabet, before Gaj's Latin Alphabet was introduced.[2]
These examples are Hungarian words that use the letter ly, with the English translation following.
