At about 5 P.M. Wednesday, the dollar marked a milestone: For the first time this year, it had managed to mark a gain from the year's start against the shekel.

All year, until Wednesday evening, the shekel had posted positive yield against the dollar. In fact the American currency returned on Wednesday to its exchange rate of late 2007.

The representative rate of exchange closed Wednesday afternoon at NIS 3.865 to the dollar, or 0.5 percent above its rate at the end of 2007. That marked a dramatic 2.3 percent rise against the shekel compared with the previous official exchange rate.

Also, the dollar should receive support from the Bank of Israel on Monday, when Governor Stanley Fischer is expected to announce another rate cut, shaving 0.25 percent or possibly even 0.5 percent off central bank overnight lending rates. While the central bank's official mandate is to keep inflation in check, Fischer indicated when he raised the rates unexpectedly by half a percent earlier this month that stimulating economic growth is also an official concern.

The resurgence of the dollar against the shekel is welcome news for exporters, as a stronger dollar increases their revenue in shekel terms. Each dollar will translate, simply, into more shekels.

Meanwhile, the Bank of Israel will consider only in December whether to keep buying dollars on Israel's forex market. Its decision will be based on the state of Israel's economy, the state of the Bank of Israel's foreign currency reserves and the shekel-dollar exchange rate in early December.

Until now, the Bank of Israel had been expected to stop buying dollars in mid-November.

When it began buying dollars in March of this year, the Bank of Israel stated that its purpose was to increase Israel's foreign currency reserves by $10 billion, to around $35 billion to $40 billion. It began by buying about $25 million on each trading day, but in mid-year stepped up the pace and purchased about $100 million per business day.

At that rate, it would have reached its stated goal of increasing the reserves by $10 billion by the middle of November. However, the central bank is now nearing reserves of $40 billion.

Sources at the Bank of Israel says that it is too soon to say when it will make its decision; the issue is dynamic, the central bank sources point out.

During Wednesday's session, the dollar had peaked at NIS 3.857 as foreign banks bought heavily in the local market, selling shekels for dollars. Traders believe that players will sit on the fence for a bit, but that the mood is readying for a rally by the battered greenback.

Traders reported heavy turnover Wednesday morning, as has been the case in recent days, with foreign banks doing most of the buying.

Sources in the know at First International Bank reported that investors are moving into waiting mode, on expectations that the dollar will continue to strengthen.

"Falling Libor interest rates could signal a calmer market, but the market has not regained confidence yet. The rumors say that central banks of the European Union and Britain are about to announce an interest rate cut, which will weaken the euro," the head dealer of Bank Discount's trading room Michel Mizrahi said.

He also reported that dollar-shekel transactions by foreign investors on the New York exchange Tuesday evening had positioned the dollar for a sharp gain Wednesday morning.

In Israel, local banks on Wednesday began buying dollars in morning trading, Mizrahi said. Later in the day that momentum was tempered by mixed activity, selling and buying, he said.

Mizrahi estimates that the dollar's general trend will continue to be upward, although there will be some fluctuation on the way. In fact, it isn't that the shekel is weakening per se: it's that the U.S. dollar has been rebounding against other currencies in the last two months, in part because of the bailout packages being rolled out throughout the West.

But localized effects have also contributed to weaken the shekel against the dollar. IDB subsidiary Koor Industries made huge foreign-currency purchases on the open market last week, say sources in the market. Apparently the acquisitions were made to buy shares in Credit Suisse, but be that as it may, the transactions weighed heavily on the shekel, say sources in the currency market.

Sources in IDB, however, say that Koor converted only a few tens of millions of shekels to the Swiss franc and that most of the transactions related to the Credit Suisse share acquisition had been carried out though foreign banks. They had not involved the sale of shekels, the IDB sources say. However, a relatively limited trading volume could have a dramatic effect in a forex market dampened by the holidays.

After an extended hiatus the dollar strengthened by more than 1.5 percent against the euro on Asian markets on Wednesday, compared to levels on Tuesday, reaching less than 1.3 dollars to the euro.

The rally of the U.S. currency is a result of demand for dollars by banks and investors selling securities and various other investments, as well as estimates that European and British economies could falter even more extremely than the U.S. economy.