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The third straight day of losses on the Tel Aviv Stock Exchange started off with only moderate declines yesterday; but stocks turned down much more sharply as news of the coalition crisis brewing after Labor Party MKs refused to support the government-sponsored budget cuts in the Knesset Finance Committee yesterday morning.

Profit taking on Wall Street the day before, after a full week of gains also made its mark on the market. The pessimistic trend was also a result of the tension in the air as the world waited for an Iranian answer to UN demands over its nuclear program.

The TA-25 lost 0.4 percent, down to 812.5 points. This is in comparison to its 816-point level on the eve of the Lebanon war. The TA-100 is off 0.5 percent to 827.9 points.

Turnover was a low NIS 920 million, as many market players are on vacation in the second half of August. Over 15 percent of all trading - NIS 145 million - was concentrated in only one stock, Makhteshim Agan Industries (TASE: MAIN). Rumors say Nochi Dankner, the new controlling shareholder in Koor is gathering up shares in the chemical giant. Nevertheless, the share ended the day with only a small change in price, up 0.2 percent.

Bond markets were stable. Yields on 10-year Shahar bonds were in the 6.44 percent range, while long-term index linked Galils traded with 3.92 percent yields.

The foreign currency markets were not seriously moved by the coalition crisis, and the dollar lost another 0.1 percent for the day to NIS 4.357 - its lowest level in the last year and five months.

Elbit Systems (TASE: ESLT) has moved into the red by 1 percent on turnover of NIS 23 million. This is after a 4.5 percent jump on Wall Street on Monday.

Teva Pharmaceuticals (TASE: TEVA) rose 0.9 percent after dropping 1 percent on Wall Street the day before to $34 a share, in spite of receiving approval on Monday for the marketing of Azilect also in Canada. The drug is for initial monotherapy in early Parkinson's disease. The bank index has risen 3 percent since the beginning of August, but changed direction with a drop yesterday of 1.2 percent. Next week Bank Leumi (TASE: LUMI) is expected to report its second quarter results, and traders took their profits during the day while sending the share down 1.3 percent. The share had risen 5 percent since the beginning of the month. Bank Hapoalim (TASE: POLI) lost 1.4 percent for the day.

The real estate index had risen 2 percent since the beginning of the month, but lost 1.1 percent for the day.