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After weeks of free falls on global capital markets, the Tel Aviv Stock Exchange finally fell into line and shed 3.7 percent yesterday.

Many in the capital market have expressed surprise every day for the past two weeks as the TASE didn't join Asian, European and New York exchanges in sliding sharply.

European markets have lost 30 percent of their capitalization in the past few weeks and are now at five and six year lows. Wall Street markets are at four and five year lows.

The TASE nonetheless managed to show strength and gained 20 percent in the past few weeks.

But in the past two days, Ahad Ha'am Street has joined the worldwide trend. After a day of 1.5 percent in the red the day before, yesterday's session opened on slight drops that increased as the hours went by.

The Maof-25 blue chip index closed down 3.7 percent at 364 points and the TA-100 dropped 3.3 percent. Turnover was relatively low at NIS 222 million.

Many also attribute the sharp falls to Monday night's assassination of Hamas leader Salah Shehadeh and concerns of further political and security deterioration in its wake, after a period of relative quiet.

The gains by shares, bonds and the shekel since the late-June nadir were the market's response to regional calm and the beginning of talks about a political solution. However, the Air Force operation in Gaza rewrote all the rules for market players.

Yesterday's currency trade also reflected fears of a renewed wave of terror attacks and political isolation. The shekel/dollar representative exchange rate was set at NIS 4.694, a 0.6 percent one-day slide for the shekel, which has lost ground since the beginning of the week.

The shekel kept losing ground even after the official rate had been set and traded around NIS 4.70 to the dollar.

Bonds followed the shekel down as its fall boosted inflationary expectations, eroding the difference between the effective interest and the interest paid on fixed-interest bonds, making bonds less attractive.

Fixed interest Shahar bonds posted 1-2 percent drops according to the bond's life span. The bond fall was not only due to the sinking shekel, but also due to profit-taking by investors who picked them up at their rock-bottom late June prices and now can pocket 10-18 percent gains.

No Maof share managed to post any gain yesterday. IDB group companies took the hardest hits. Clal Industries sank 6.4 percent, IDB Development slid 6 percent and Discount Investments bade farewell to 5.5 percent.

Major concern Koor (NYSE: KOR) lost 5.3 percent in value and Bank Hapoalim shed 4.7 percent. State-owned phone company Bezeq posted a 4.6 percent loss.

The highest turnover on the floor was again in Teva Pharmaceuticals (Nasdaq: TEVA), NIS 50 million, which slipped 2.1 percent.

Only two TA-100 shares eked out gains. Maritime Bank of Israel leapt 31 percent on Bank Hapoalim's plans to publish a purchase offer for the entire bank. Hed Arzi climbed 12 percent after Ma'ariv made a bid for the failing company.