Shekel gains 1.1 pct vs dollar but pares gains late

JERUSALEM, April 30 Wed Apr 30, 2008 7:50pm IST

JERUSALEM, April 30 (Reuters) - Israel's shekel ILS= jumped 1.1 percent against the dollar on Wednesday in what dealers said was usual end-of-month positioning.

Local companies typically sell dollars and buy shekels at the end of each month to pay salaries at the beginning of the following month.

The shekel's official rate was set at 3.4290 per dollar compared with 3.4670 on Tuesday. The Israeli currency has advanced some 12 percent versus the dollar so far in 2008.

The exchange rate opened at 3.46 and by mid-afternoon had reached 3.4250.

A dealer at a foreign bank in Tel Aviv said a local and London player then bought dollars.

"That's the level it stopped last time," the dealer said, referring to a similar rally in the shekel two weeks ago.

The 3.4250 level has become a support for the dollar, he added.

After the setting of the official rate, the dollar continued to recover, moving to 3.4460 shekels.

The dollar appreciated against the euro on a view that the Federal Reserve will signal the end of its easing cycle, while weak euro zone data could prompt rate cuts there.

The Fed later in the day is expected to reduce U.S. rates by a quarter-point to 2 percent. That would widen the gap between Israeli and U.S. rates to 1.25 points and underpin the shekel.

On Monday, Israel's central bank kept its key lending rate at a record low of 3.25 percent after half-point rate decreases in February and March.

Policymakers stuck to a view that inflation will moderate later in the year as a U.S. downturn will slow Israel's economy and reduce consumer demand. But they also acknowledged higher than expected gains in food and energy costs as part of a statement that cited "opposing forces" on inflation.

Largely due to food and energy, inflation in March was 3.7 percent over the prior 12 months, above a government target of 1 to 3 percent.

Most analysts anticipate steady policy or the start of interest rate increases in coming months.

Tel Aviv share indexes .TA25 .TA100 were 0.3 higher in late trading, while benchmark bond prices ILSAHR2683=TA rebounded 0.3 percent after steep losses the prior few sessions. Its yield slipped 5 basis points to 5.84 percent after rising by 24 basis points the first three sessions this week.

Against the euro, the shekel EURILS= was set at 5.3278 compared with 5.3976 on Tuesday.

On the crosses, the shekel increased 1.2 percent to 3.2902 per 100 yen and advanced 1.5 percent against the pound to 6.7436.

For further information double click on the following:

ILS= for latest commercial bank shekel/dollar rates.

ILS1= for a list of commercial bank shekel/dollar rates.

ILS2= for a list of commercial bank shekel/basket rates.

BOIT12 for Bank of Israel rates.

FXIL for Israeli spot and mid rates by the hour.

(Reporting by Steven Scheer; Editing by Ron Askew)

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