OCCUPIED JERUSALEM: Israel's financial markets fell sharply on Monday in response to an intensifying debate on the prospects of going to war with Iran.
Key Tel Aviv share indexes dipped 1.5-1.6 percent, while government bond prices declined as much as 1.7 percent and the shekel weakened some 1 percent to 2-1/2 week low versus the dollar.
"Iran is back in the headlines as if the government is preparing us for something," said a currency dealer at Israel Discount Bank.
On Sunday, Prime Minister Benjamin Netanyahu said that most threats to Israel's security were "dwarfed" by the prospect of Iran obtaining nuclear weaponry. That followed newspaper reports, citing U.S. intelligence, of significant Iranian progress in the development of a nuclear warhead.
Netanyahu, who has been saying for years that Iran must not be allowed to become a nuclear power, said Israel was investing billions in home-front defence while the military was testing a text message warning system to citizens and the cabinet adopted new rules to streamline decision making.
"All together it looks like the next step" before a strike, said Rony Gitlin, head of spot trading at Bank Leumi, adding that offshore banks were buying dollars and call options.
The shekel was fixed at 4.041 per dollar, up 0.9 percent from Friday. But after the fixing it depreciated further to 4.06 - its weakest level since July 27.
Dealers said decreased liquidity during the summer may have exacerbated the move, but the shekel does seem to have decoupled somewhat from global trends after months of tracking the ebbs and flows of the dollar versus the euro and other emerging markets.
The blue-chip stock index's 1.5 percent fall comes after a 0.6 percent decline on Sunday. Declines were broad-based but led by steep drops in bank shares.
Bond prices also were mostly lower on Sunday, while the foreign currency market was closed.