Israeli stocks and government bonds fell after the Israeli cabinet agreed to call up army reservists, spurring concern air strikes on the Hamas-controlled Gaza Strip may be followed by a ground invasion.
Oil Refineries Ltd. slid to the lowest since it began trading in February 2007 after Calcalist reported that one of the units of the country's biggest refiner may no longer meet the criteria for its bank loans. Shares in Bank Leumi Le-Israel Ltd. dropped to their lowest in five years.
Israel's TA-25 Index slid 9.09, or 1.43 percent, to close at 625.84, while the yield on the benchmark Mimshal Shiklit note climbed 4 basis points to 4.78 percent. The country's benchmark stock index has lost 49 percent this year, the biggest decline since Bloomberg started collecting data in 1992, amid the worst global financial crisis since the Great Depression.
"Wars are not generally favorably looked upon by the market", Joel Kirsch, a trader at Leader & Co., said by telephone. "The concern is that things could escalate to include ground forces, which could result in an increase in the defense budget and the deficit."
Israel's government is already grappling with a deceleration in economic growth to an annualized 2.3 percent in the third quarter from 4.1 percent in the second. The central bank forecasts growth of 1.5 percent in 2009, and is expected to lower its key lending rate tomorrow to shore up the economy.