Market Report / Yair Lapid's Budget Lowers Spirits on Tel Aviv Stock Exchange

News of a 1% hike in the corporate income tax rate weighs on shares.

Early gains on the Tel Aviv Stock Exchange Monday evaporated by afternoon as investors sized up Finance Minister Yair Lapid's draft budget.

The market had been prepared for an austerity package of deep spending cuts and tax increases, but news of a 1% hike in the corporate income tax rate weighed on shares.

As a result, the benchmark TA-25 index, which had been up as much as 0.8% earlier in the day, ended down 0.2% at 1,201.62 points. The broader TA-100 eked out a 0.1% gain to 1,073.35. Turnover was a relatively brisk NIS 1.15 billion.

European shares, meanwhile, inched higher on Monday as signs of progress in breaking a political stalemate in Italy outweighed fresh downbeat earnings news and concern over the health of the global economy.

Milan's FTSE MIB index, up 1.5%, proved the regional outperformer for most of the day. The re-election of Italy's president – following broad agreement among various political groups – raised the prospect of an end to a two-month stalemate after an inconclusive election. The FTSEurofirst 300 provisionally closed up 0.1% at 1,154.68 points, after dropping 2.4% last week - its worst weekly loss since November.

On Wall Street, stocks edged lower, as earnings from Caterpillar, Halliburton and other major companies pointed to more volatile trading ahead. The Standard & Poor's 500 Index shed 0.25% to 1,551.35. The Nasdaq Composite Index lost 0.11% to 3,202.58.

In foreign currency trading, the dollar lost almost 0.9% against the shekel to a Bank of Israel rate of NIS 3.6290. The euro lost 0.2% to NIS 4.7339.

Despite the dollar's losses on Monday, Yossi Fraiman, CEO of Pico Risk Management & Investments, said the greenback will likely hold between NIS 3.61 and NIS 3.64 because it is trading in a narrow range against the euro.

"We believe that in the long term, the shekel will likely continue to strengthen, while in the short term, brief surges in demand will support its depreciating to a level of NIS 3.65 and perhaps even more," he said.

Bank shares led the market lower, with the TA-Banking index off 1.4% at 1,091.97. Mizrahi-Tefahot bank dropped 2.7% on turnover of NIS 83.3 million, the day's second highest. Bank Hapoalim was down 1.5% and Bank Leumi was off 1.1%.

Another big loser in Monday's trading was the telecommunications sector. The TA-Communications index slumped 1.4% to 563.67. Bezeq declined 2.8%, Partner Communications dropped 2.2% and Cellcom Israel lost 1.3%.

El Al Airlines recovered from a sharp drop on Sunday, closing on Monday 2.5% higher, despite concerns that the Open Skies accord with the European Union, approved by the cabinet on Sunday, will hurt the carrier. El Al told the TASE on Monday that it could not compete fairly with European carriers because, among other things, it carried some $33 million in extra security costs in 2012.

Yitzhak Tshuva's Delek Group advanced 2% on news that Tshuva planned to turn to U.S. markets to raise some $2 billion in debt capital through two energy units – Delek Drilling, which ended up 2.2%, and Avner, which rose 1.3%. The proceeds will be used to recycle some $800 million in debt and to finance further drilling.

IDB Holding Corporation, whose controlling shareholder Nochi Dankner is fighting creditors on multiple fronts, saw its bonds extend their decline on Monday, falling 7.3%. Its shares, which plunged 9% on Sunday, fell another 3.7% on Monday, trimming its market capitalization to just NIS 415 million, a record low. However, shares of Danker's Discount Investment Corporation rallied 5.5%.

Israel Chemicals, which topped the most actives on the TASE on turnover of NIS 91.6 million, closed 2% higher. Israel Chemicals has ended sharply higher in three of the last four trading sessions after wilting on Lapid's announcement last week that he would oppose any sale of the company to Canada's Potash Corporation of Saskatchewan.

Reuters contributed to this report. 

Michal Fattal