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Tel Aviv stocks wilted as fighting in the North escalated, rumors of Israeli casualties turned out to be true, and the cabinet decided to expand the IDF's ground operation. Sentiment was further soured by the negative trend on Wall Street the previous night based on worries that the Fed's decision to leave U.S. lending rates unchanged at 5.25 percent was a mere respite from the 17 consecutive rate hikes over the last two years.

The TA-25 index dropped by 1.8 percent to 792.5 points, the TA-100 index lost 1.7 percent to 808.9, and the Tel-Tech 15 index fell by 1.1 percent, dragged down by dual-listed stocks. Bonds also retreated, by a steep 0.4 percent for long-term Shahars, and 0.2 percent for CPI-linked Galils. Total turnover was NIS 950 million.

Teva Pharmaceuticals (TASE: TEVA) bucked the trend with an 0.3 percent gain on NIS 118 million turnover, the highest of the day. Shares in the Israeli generic drugs giant had soared on enormous turnover of almost NIS 650 million on Tuesday. Later that night, the company's share price gained 5.2 percent on Wall Street, after the company reported positive second-quarter results, thereby allaying some concerns about the generic drugs sphere. But analysts remained mixed: Leader & Co analyst Ori Hershkovits repeated a Buy recommendation in a gushing report, but Merrill Lynch remained at Neutral.

Lipman Electronic Engineering (TASE: LPMA), also a dual-listed stock, dropped 0.4 percent on NIS 2.2 million turnover after reporting second-quarter financials earlier this week. The company is about to be taken over by Verifone, with the handover expected to take place at the end of October. Lipman said it netted $7.5 million on $62.8 million revenues. Minus stock option costs, the company's non-GAAP profit was $9.1 million, or 34 cents per share.

Tadiran Communications (TASE: TDCM) added 0.5 percent after announcing that one of its subsidiaries had received a $15 million order from the U.S. Army for ruggedized handheld and other portable computers.

Elbit Systems (TASE: ESLT), the parent company of Tadiran Communications, dropped 2.2 percent despite filing strong reports Tuesday night.

The Tel Aviv Real Estate-15 index lost 2.8 percent. Electra Real Estate (TASE: ELCRE) fell by 1.4 percent, although it reported a 166-percent increase in revenues to NIS 49.6 million. Africa Israel (TASE: AFIL) dived 4.4 percent after being downgraded by Clal Finance Batucha earlier this week.

The big banks also lost ground, with Bank Hapoalim (TASE: POLI) dropping 2.1 percent and Bank Leumi (TASE: LUMI) losing 2.3 percent. Insurance companies also were not spared: Migdal (TASE: MGDL) lost 1.4 percent, Harel (TASE:HRL) retreated by 3.3 percent, and Clal Insurance (TASE: CLIS) lost 2.5 percent.

Given Imaging (TASE: GIVN) lost 3.2 percent on NIS 2.8 million turnover. It transpired yesterday that the reason the medical technology company's stock had risen 15 percent in the last week was that Nochi Dankner had ordered two IDB group companies - Discount Investment (TASE: DISI) and Elron (TASE: ELRN) - to buy shares in the company. Each bought 540,000 shares for a total of about $20 million.

Ham-Let (TASE: HAML) started the day 6 percent ahead after publishing good second-quarter results, but ended up 1.5 percent on tremendous turnover for the share - NIS 5.6 million.