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The shekel slumped against the major currencies yesterday after Bank of Israel governor David Klein warned that the government could lose control if the economy continues to decline.

"Economic and social deterioration cannot continue.... The moment could come - nobody can pinpoint exactly when or why - when the government's ability to rule will become questionable," Klein said at the Ma'ariv banking conference.

The shekel was already under pressure on intimations that a U.S.-Iraq war may be around the corner and after an internal treasury document revealed expectations of a massive deficit in February on top of the whopping January deficit of NIS 2.7 billion.

Minutes after Klein's speech, the dollar began to soar, climbing as high as NIS 4.94 after the representative rate had been set at NIS 4.894 - up 0.71 percent on Wednesday's rate. The euro also gained strongly, with its official rate up 1 percent from Wednesday's rate to NIS 5.269 and climbing to NIS 5.345 in late trade.

This is not the first time Klein's comments have caused a storm on the foreign currency markets.