August 27, 2013 / 2:12 PM / 4 years ago

Israeli shekel slides, stocks fall on talk of attack on Syria

JERUSALEM, Aug 27 (Reuters) - Growing speculation about Western military action against neighbouring Syria weakened the shekel and Israeli share prices on Tuesday, sending the local currency to a six-week low against the dollar.

The shekel had been one of the best-performing emerging market currencies this year but it has shed almost half its 2013 gains on fears of Western military action in Syria that could lead to a wider conflict in the Middle East.

The shekel was fixed at 3.657 per dollar, its weakest level since July 8 and a 1.5 percent drop from 3.603 on Monday. In two sessions, the shekel has lost some 2 percent.

“It is purely Syria on how it affects Israel but also how it affects the world,” said Rony Gitlin, head of spot trading at Bank Leumi, adding that dollar buying was mainly by foreign banks that were also selling other emerging market currencies.

The United States has called for accountability for those responsible for a gas attack in Syria last week that killed hundreds of civilians, and calls for retribution have come also from some of its allies despite Russian and Chinese opposition.

Talk of Western military action has fuelled a sell-off in other emerging market currencies, with the lira in Turkey - another of Syria’s neighbours - hitting a record low , and Russia’s rouble at its weakest in four years against a dollar-euro basket

Should there be no attack, Gitlin said the shekel - boosted this year by steady economic growth and the start to natural gas production - would resume its appreciation trend.

A strong shekel had been a particular concern for policymakers since a robust currency harms exports, which account for some 40 percent of Israel’s economic activity. In addition to intervening from time to time in the market, the Bank of Israel lowered its benchmark interest rate twice in May, citing a strong shekel that neared a two-year peak.

The currency’s stability of late was one reason the central bank cited for leaving rates on hold on Monday.

Daniel Rapoport, head of equities and derivatives trading at Leumi Capital Markets, said the threat of a wider conflict led to across-the-board selling of stocks in Tel Aviv and redemptions by mutual funds.

In late trading, the blue-chip Tel Aviv 25 index was down 2.0 percent at 1161.02 points, while the broader TA-100 index was 1.8 percent lower at 1063.14. Volume of 1.4 billion shekels ($384 million) was above average.

“People fear that this could escalate and Israel would be attacked after Syria is attacked,” Rapoport said.

Government bond prices fell as much as 0.3 percent. (Reporting by Steven Scheer; editing by Stephen Nisbet)

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