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* Tel Aviv blue-chip index down 7 pct after delayed opening
* Market fears another global recession
* Circuit breakers used for first time since 2008 (Adds Finance Minister comments, paragraph 7)
By Tova Cohen
TEL AVIV, Aug 7 (Reuters) - Tel Aviv shares closed nearly 7 percent lower on Sunday in the first response of a developed market to Standard & Poor's downgrade of the United States' credit rating that has sparked fears of another global recession.
The Israeli market along with a few emerging markets in the Middle East were the first to trade after S&P late on Friday cut the U.S. long-term credit rating by a notch to AA-plus from AAA due to concerns about the country's budget and climbing debt burden.
The TA-25 .TA25 blue-chip index closed down 6.99 percent to 1,074.27 points and is down 18 percent since the start of the year. The broader TA-100 .TA100 slid 7.2 percent.
Israel's market is closed on Fridays and Saturdays.
The Tel Aviv market opening was delayed by nearly an hour as circuit breakers kicked in when shares fell more than 5 percent in pre-market trade.
The last time circuit breakers were used was on Sept. 21, 2008, after the collapse of Lehman Brothers, a stock exchange spokeswoman said.
Asked by Channel 2 television if the downgrade was dangerous for Israel, Finance Minister Yuval Steinitz said: "It's not directly dangerous, but it's certainly a warning sign that the global crisis has not yet passed and we still have to navigate the Israeli economy through very rough waters."
The market fears the U.S. debt situation could spiral out of control and possibly lead to a "double-dip" economic recession, said Zach Herzog, head of international sales at the Psagot brokerage.
"If the U.S. sinks into a recession, the Israeli economy can't come out of that unscathed. We are dependent on sending goods and services out," Herzog told Reuters, noting exports account for 45 percent of Israel's gross domestic product with two-thirds of exports going to the United States and Europe.
The market is also concerned about the exposure of Israeli banks to U.S. debt. Herzog said Bank Leumi (LUMI.TA) and Israel Discount Bank (DSCT.TA), the country's largest and third-largest banks, respectively, were most heavily exposed among Israeli banks in terms of their proprietary portfolios.
Shares in Leumi ended down 8.4 percent to 13.49 shekels while Discount Bank lost 10 percent to 5.44 shekels.
Senior officials from the finance ministry, Bank of Israel and Securities Authority met on Saturday night to discuss the volatility of the financial markets and implications of the U.S. credit rating downgrade.
"The point was made that the possibility of such a downgrading of the U.S. rating had been taken into account for some time in Israel's macroeconomic policy, and recently had also been priced in by the markets to some extent," a statement from the central bank and finance ministry said on Sunday.
The Bank of Israel and the ministry said they monitor developments constantly and are ready to use the tools available to them as necessary.
"Israel's macroeconomic situation is good and so far the debt crises abroad have had a limited impact on Israel, due to its macroeconomic strength, achieved by means of adherence to fiscal discipline," they said.
Israel's currency market is closed on Sunday, but prices of government bonds fell as much as 0.4 percent for longer-dated maturities. Short-term bonds ended up 0.1 percent.
Psagot's Herzog said the magnitude of the declines in Tel Aviv stocks was not surprising.
"We've been saying for some time that no matter how much you expect an event, when it's traumatic enough it will still have shock value," he said.
What was most interesting was the fact that there were no large local buyers, Herzog added.
"Usually you would expect local institutions to supply some sort of support and we're not seeing that," he said. "Now index players, options players are positioning themselves for whatever might come."
He said foreign selling pressure was not significant though foreign activity has largely been on the sell side most of this year. "We don't sense any panic selling from them," he said, noting foreigners were not usually heavily involved in trade on Sundays.
The Israeli market has historically been locally driven and was even more so over the past year since the Tel Aviv market was upgraded to developed status by MSCI last year.
"Retail and options are what drive the market and they are much more likely to be swinging in the breeze," Herzog said.