The Tel Aviv Stock Exchange marked the second day after U.S. elections of trending lower as it shared Wall Street's worries about an impending battle between President Barack Obama and Congress over fiscal policy between now and the end of the year.

Shares clawed back some of their biggest losses by the end of the session. Nevertheless, the TA-25 index of blue chips finished 0.5% lower at 1211.57 while the TA-100 dropped 0.1 % to 1,071.96. Turnover was NIS 823.5 million.

For the week, the two indices were down 0.7% and 1%, respectively, cutting their year-to-date returns to 11.6% and 9.6%.

Among the sectoral markers, the Real Estate-15 index dropped 0.6% to 286.71 while the TA-Banking index outpaced the market's drop to end 1.03% down to 1,082.11. Technology shares, however, gained on Thursday, with the Bluetech-50 finishing higher, by 1.25% to a close of 327.10.

The Dow industrials lost more than 300 points in a sell-off on Wednesday that drove all major stock indices down over 2% in the wake of the presidential election. The Standard & Poor's 500 Index posted its biggest daily percentage drop since June, with all 10 S&P sectors solidly lower.

Wall Street was edging higher in early trading Thursday, but investors remain concerned about the the so-called "fiscal cliff," with investors worrying that if no deal is reached over some $600 billion in spending cuts and tax increases due to kick in early next year, it could derail America's economic recovery.

European stocks pared gains and turned flat in late trade Thursday, with Italian shares among the worst hit as brewing concerns over the eurozone debt crisis kept investors on edge.

The FTSEurofirst 300 index of top European shares was flat at 1,099.31 points, with Milan's MIB down 0.8%.

In local foreign currency markets, the dollar recorded a strong gain on the shekel, appreciating 0.62% to a Bank of Israel representative rate of NIS 3.9030. The euro posted a more modest increase of 0.03% to NIS 4.9751.

EZchip soared 21.7% on Thursday after it reported third-quarter earnings of 10 cents a share, well above analysts' consensus forecast. That more than made up for the fact profit plunged to $127,000 from $7.7 million, or 27 cents a share, a year ago. Stripping out one-time items, per-share earnings were 10 cents down from 35 cents.

Stem cell scandal

Pluristem plunged 8.9% after Bloomberg News published a report saying the company failed to report the death of a young patient who had been treated with the company's experimental stem cells, and might be subject to a U.S. Securities and Exchange Commission investigation.

Bezeq ended 0.8% lower to close at NIS 4.65 on turnover of NIS 57.7 million, making it the most heavily traded stock of the session, a day after it reported a sharp drop in quarterly revenue and profit. The company said it earned NIS 342 million, down from NIS 550 million a year ago and well below the NIS 403 million forecast in a Reuters poll.

"Bezeq's report emphasizes the challenges the company faces in the coming years. I find it difficult to understand why the company is valued [by the market] at more than Cell, Partner and Hot combined," said Ori Licht, chief analyst at IBI Israel brokerage & Investments.

By way of a second opinion, Rami Rosen, a telecoms analysts at Harel Finance, continues to tag Bezeq a Market Perform and gives them a target price of NIS 4.70. "Bezeq is the dominant player in the Israeli telecommunications market and the preferred company because it is exposed to all segments of the communications sector," said Rosen.

Bank shares were lower on news that the Bank of Israel has issued a circular that, if approved, will require lenders starting 2013 to toughen the standards by which they how they make bad-debt provisions for sectors of the economy.

Bank Leumi was down 1.5% by close, Bank Hapoalim was off by 1.1% and First international Bank of Israel was down by close to 2%.

Reuters contributed to this report.