Israeli Stocks Lose Early Gains Sunday on Debt Ceiling Jitters

Volatility increases ahead of Oct. 17 deadline to solve U.S. crisis.

Tel Aviv stocks lost early gains to end lower as investors as the deadline to resolve Washington's debt ceiling draws near.

The benchmark TA-25 index of blue chips and broader TA-100 both ended 0.6% lower on Sunday at 1,285.16 and 1,160.41 points, respectively, on total turnover of NIS 938.6 million.

The market was led lower by insurance and property shares, with the TA-Insurance index losing 1.1% and the Real Estate 15 index off 1.2% for the day at 1,487.95 and 366.01, respectively.

Hopes that U.S. lawmakers were nearing a deal to avert a debt default bolstered global equity markets on Friday. The Dow Jones industrial average rose 0.7% to 15,237.11, the S&P 500  gained 0.6%, to 1,703.20 and the Nasdaq Composite added 0.8%, to 3,791.87. It bears noting that the Tel Aviv Stock Exchange is closed Friday and reopens for the week on Sunday.

MSCI's world equity index, which tracks stocks in 45 countries, rose 0.8%, while in Europe the FTSEurofirst 300 index of top regional shares rose 0.4 % to 1,250.05. Shares also rose in Asia. But the benchmark 10-year U.S. Treasury note was unchanged in price to yield 2.686%. The 2-year U.S. Treasury note traded flat, yielding 0.35% as bond investors shunned shorted Treasury debt on concerns that the battle will merely be pushed off to later in the year.

Legislators are negotiating to raise the $16.7 trillion federal borrowing limit and reopen the federal government. If the borrowing cap is not increased by October 17, it could lead to a U.S. debt default.

Assaf Shaul, deputy CEO for investments at Alfa Platinum Mutual Funds, said he expected volatility in the markets to remain intense over the near term. "The U.S. market rose over the weekend in expectation of a solution to the budget crisis, but volatility is growing as the 17th of the month nears. We still expect to see the U.S. crisis to be resolved before the 17th, with share prices rising in its wake," he said.

In the local currency market, on Friday the dollar weakened by 0.3% to a Bank of Israel rate of NIS 3.5470. The euro was virtually unchanged at NIS 4.8114.

Israeli government bonds rose gently ahead of publication Tuesday of the September consumer price index. The government's 10-year Shahar bond edged up 0.08% to a yield of 3.74%. Its inflation-index Galil bond for the same term was ahead 0.16%, cutting its yield to 1.61%.

The Tel Bond 20, 40 and 60 indices advanced as much as 0.09%. Melisron, the shopping mall developer and operator, saw its Series Vav bond rise 0.5% after it said on Sunday it had completed the sale of its Harel Mall for NIS 302 million.

Against that, Knafayim, the parent company of El Al Airlines, saw its Series Dalet bonds drop 2.7% after the private equity fund FIMI pulled back from an agreement to buy a controlling stake in El Al.

Israel Petrochemicals' Series Bet bonds fell 3.6%, bringing their yield to a junk 35%. The company may seek a debt rescheduling with creditors amid financial troubles at its Oil Refineries Limited unit.

Teva Pharmaceuticals led the most actives, with NIS 89.3 million changing hands on a rise of 0.6%. Investors have been applauding the company's plan to cut some $2 billion in costs.

Issta, the travel company, gained 5.8% after it completed a NIS 36 million agreement with institutional investors.

Koor, the holding company controlled by Nochi Danker's IDB group, rose 0.6% after it said Sunday it had sold another block of shares in Credit Suisse for 175 million Swiss francs, equal to NIS 680 million, and will record a gain of NIS 17 million on the sale.

Life science shares led the top gainers among TA-100 stocks Sunday. Clal Biotechnology rose 5.9%, Kamada gained 2.6% and Give Imaging 2.6% as well. Compugen, however, was down 2.2%.

Babylon, the online transition company, led the losers in the TA-100 index with drop of 4.6% ahead of its merger with IronSource.

Reuters contributed to this report.

Ofer Vaknin