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As the Dow Jones Industrial Average surpassed record levels this week on the fall of oil prices and a forecast end to US interest rate hikes, Israeli analysts maintained that the Tel Aviv exchange also would continue its positive run but driven rather by local forces.
"There is some link to the Dow but I would downplay it,' said Avi Weinreb, a trader at Clal Finance Batucha Investment Management Ltd. "The TA-25 has been on a strong run and we expect the positive sentiment to continue. But the powers that drive it are purely Israeli."
Weinreb listed the strength of the shekel as a major contributing factor to the upward trend in the Tel Aviv market in addition to expectations of future reductions in interest rates by the Bank of Israel.
The Dow climbed above its January 14, 2000 peak to close at 11,727.34 Tuesday as oil fell below $59 a barrel for the first time since February. US analysts were cautiously optimistic of the trend.
"The market has performed during the summer better than I thought it would," said Byron Wien, chief investment strategist at Pequot Capital Management Inc. "My feeling is that it will struggle in the fourth quarter, but right now people are momentum-focused, and the momentum of the market is positive."
The index climbed a further 0.42% to 11,776 during morning trade in New York on Wednesday.
Closer to home, Richard Gussow, an analyst at Excellence Nessuah, noted conflicting trends playing on the Tel Aviv market and placed greater emphasis on the influence of the oil price drop.
"On the plus side, we have the reduction in oil, a more stable geopolitical situation than two-three months ago, are possibly looking at a cut in interest rates and are expecting overall positive third quarter results," Gussow said. "But then there is still uncertainty on the political scene and the strengthening of the shekel may put exporters in a difficult position."
He listed the electronics, chemicals and tourism sectors as those most likely to be negatively effected by the weaker dollar.
With the decline in oil prices, Gussow noted that the trend indicates a slackening in demand for fuel which points to a slow in global economic activity, "which certainly effects Israel," he said.
In summary, however, Gussow forecast a continued upward trend in the market.
Since dropping to 748.84 on July 13 with the outbreak of the war the previous day, the TA-25 has recovered 849.86 at market close Wednesday.
"The market has shown tremendous resilience and we have seen that when times are bad it doesn't fall dramatically, but when things improve it also doesn't have major gains," Clal Batucha's Weinreb added. "The effect of the war was short-lived and we expect the economy to continue to grow."
While he said it would take a very strong end of year rally to push the index close to the 900 benchmark, a level of around 870 was more realistic for the close of 2006.
"December is traditionally a strong month as funds compete to show the best returns for the year but we expect the market to stay around where it is now," he said noting, however, that "the strong shekel and inflationary pressures to lower interest rates are all empowering the positive mood in the market."
Bloomberg contributed to this report