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The Tel Aviv Stock Exchange on Sunday posted particularly sharp gains. Turnover was exceptionally large and amounted to almost NIS 500 million. Leading indices gained more than 4 percent, with the Maof-25 blue chip index ending the day up 4.1 percent. Shekel-denominated government bonds also posted relatively substantial gains, with long-term Shahar bonds up 1.5 percent.

There is no currency trade on Sundays, but shekel-dollar options trading reflected a theoretical daily rate of NIS 4.44 - down from Friday's representative dollar exchange rate of NIS 4.46. This indicates market players see the shekel continuing to gain ground into the week.

Market players attribute the optimism to the beginning of movement in a peace process with U.S. Secretary of State Colin Powell's visit here, the sharp drop in inflation expectations and Wall Street's weekend gains.

Since mid-February, when the second Sharon coalition was cobbled together and the financial markets slid into a five-year low, stocks have gained a remarkable 42 percent. Long-term shekel-denominated bonds have climbed 25 percent, and yields on them have fallen in recent days to a low 8 percent. Just three months ago, these same bonds were trading with 12 percent yields. The shekel traded in February at NIS 4.90 against the dollar, but has gained 9.4 percent or 45 agorot since.

Market estimates are that NIS 200-250 million were injected yesterday alone into mutual funds, most going into funds that invest in shekel-denominated bonds.

April data from the mutual funds is still unavailable. Nonetheless, the market believes the public injected about NIS 1 billion into the funds last month, of which apparently NIS 200 million went to stock-based funds.

The mutual fund sector is one of the best indicators of the public's attitude to the stock exchange. Many people invest via specialty mutual funds instead of directly buying stocks and bonds. These figures indicate that the public hasn't swept back into investing in stocks, but there is a return to shekel instruments. This follows the collapse of shekel instruments in 2002, on tens of billions of shekels in redemptions.

In 2002, the public invested largely in mutual funds that specialize in foreign currency or bonds traded abroad. The capital gains these funds posted were almost wiped out in the past few months, as the shekel substantially gained ground against most foreign currencies. In contrast, shekel mutual funds have posted yields of 20-25 percent since the beginning of the year, after ending 2002 with negative yields.