CORRECTED - UPDATE 1-Shekel jumps vs dollar on Israel-Syria peace talks
(Corrects fourth paragraph to say Turkey mediating Israel-Syria peace talks)
JERUSALEM, May 21 (Reuters) - Israel's shekel ILS= jumped more than 1 percent in late trading on Wednesday to a more than 11-year peak against the dollar, triggered by news that Israel and Syria had resumed indirect peace talks.
At 1450 GMT the shekel was at 3.33 per dollar, its strongest level since February 1997 and above its official rate at 3.3620. It had hit an intraday high of 3.32.
Key share indexes on the Tel Aviv Stock Exchange rose about 1 percent and benchmark 10-year bond prices ended 0.4 percent higher.
The shekel opened around 3.38 per dollar and appreciated to 3.36 by mid-afternoon after Israel and Syria announced they had launched indirect peace talks mediated by Turkey, the first confirmation of negotiations between the long-time enemies in eight years.
The exchange rate held between 3.35 and 3.36, a key support level that was the previous high for the shekel versus the dollar in March. It was at that point, 3.35, when the Bank of Israel intervened in the market, buying $600 million of foreign currency in a bid to halt a slide in the dollar.
"There was the announcement today that Israel and Syria were starting a peace process so people started selling dollars," said Moran Yellink, a dealer at Israel Discount Bank.
"Once it got to 3.35, it (the dollar) fell like a rock. Everybody sold -- locals, banks and even foreigners."
The shekel has appreciated more than 15 percent so far this year against the dollar after a 10 percent gain in 2007.
Such a move puts Bank of Israel Governor Stanley Fischer in a tough spot. A strong shekel helps to contain inflationary pressures since nearly half of housing costs in Israel are quoted in dollars but paid in shekels.
But a strong local currency also tends to hurt exports, which would threaten to weigh on the economy as a whole.
The shekel has moved back to its mid-March highs after a surprising 1.5 percent jump in the consumer price index in April from March, bringing inflation over the prior 12 months to a rate of 4.7 percent -- well above an official target of 1 to 3 percent.
The market had expected a monthly rise of 0.9 percent and an annual rate of 4.1 percent.
As a result, market players have factored in at least a quarter-point rate increase next week as the central bank tries to rein in inflation.
The Bank of Israel had lowered its key rate by a combined one percentage point in February and March to a record low of 3.25 on expectations that a U.S. slowdown would dampen Israeli growth and ease inflation pressures.
(Editing by Ron Askew)
