Market Report / Rate Cut Weighs on Shares

The TA-25 index of blue-chip stocks finished down 0.8% at 1,181.48 points, and the broader TA-100 fell 0.6%, to 1,045.70.

The Tel Aviv Stock Exchange marked another day of declines Tuesday after the Bank of Israel cut its economic growth projections for next year and underscored its pessimism with an interest rate cut.

The TA-25 index of blue-chip stocks finished down 0.8% at 1,181.48 points, and the broader TA-100 fell 0.6%, to 1,045.70. With foreign investors off for the Christmas holiday, turnover was on the low side at some NIS 853 million. Among the sectoral indexes, only the Real Estate 15 squeaked upward with a 0.2% increase to 301.86.

The rest were lower, with banking shares extending their big losses and pacing the declines. The TA-Banking index ended down 1.9% to 1,115.51, with Israel Discount Bank down 2.3%. All the other big banks were also sharply lower.

The central bank surprised forecasters Monday after the close of TASE trading by announcing a 25-basis point reduction in the base lending rate for January, to 1.75%, saying the economy needed the help of cheaper money to ward off slowing growth. At the same time, the bank said gross domestic product (not counting the effect of the start of natural gas production at the Tamar field ) would grow 2.8% next year, 0.2 percentage points less than the previous forecast.

If stocks were depressed, the rate cut did spell good news for the bond market, where 10-year government shekel bonds rose 0.3%, cutting yields to a new low of 3.65%. The Tel Bond 20, 40 and 60 indexes closed 0.2% to 0.3% higher, led by Bezeq and Gazit Globe.

On Wall Street, the Dow Jones industrial average lost 0.4% on Monday, to 13,139.08. The Standard & Poor's 500 Index fell 0.2%, to 1,426.66, and the Nasdaq Composite Index lost 0.3%, to 3,012.60. U.S. and European markets were closed on Tuesday for Christmas.

The S&P 500 index posted its biggest drop in more than a month last Friday as a Republican plan to avoid the "fiscal cliff" failed to gain traction. But investors are still betting Congress will reach a deal to avert most of the austerity measures that would otherwise come into force at the start of next year.

Among energy shares, Israel Opportunity, which owns 10% of the Pelagic licenses, climbed 6.6%, and Eden Energy, which owns 3% of the license, gained 4%. Drilling is beginning at Ishai, the first of five Pelagic licenses, where an estimated 3.7 trillion cubic feet of gas may be found.

"Israel Opportunity is in the midst of its [gas] drilling, and it's possible that positive rumors are being leaked about it," said Shlomo Meir, CEO of DBM. "In addition, they're about to distribute warrants to shareholders, which is influencing the stock for the better."

Among real estate stocks, Africa Israel sunk 5.5% and Jerusalem Economy 3.2%. But Alony Hetz advanced 2.1% and Gazit Globe by 1.3%. Alony Hetz has been gaining since it announced it signed a memorandum of understanding to invest $300 million in Carr Properties, which owns and develops U.S. office buildings.

Mishorim ended 2.3% higher after it told the TASE its Skyline International Development unit will buy half of the commercial space in Canada's Blue Mountain ski resort for NIS 80 million. Skyline is slated to have an initial public offering in Canada, probably next month.

Online translation company Babylon lead the gainers on Tuesday, jumping 9.4% on turnover of nearly NIS 15 million.

Reuters contributed to this report