* 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 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
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
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
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
"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.
US DOWNGRADE PRICED IN?
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
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.