Shares on the Tel Aviv Stock Exchange fell sharply Thursday in their heaviest trading day ever as Prime Minister Ariel Sharon remained in critical condition after suffering a massive brain hemorrhage.
The country's benchmark TA-25 index lost 3.9 percent to close at 816.1 with all shares on the index losing ground, led by losses in Bank Hapoalim, Bank Leumi and Teva Pharmaceutical Industries.
The index had fallen as much as 5.9% in early trade, to a low of 799, after reaching its third successive record high close on Wednesday.
The TA-100 dropped 3.9% to close at 822.8
Bonds also fell sharply and the shekel depreciated by 1% against the dollar to NIS 4.6163
At NIS 4.12 billion, the market saw its highest ever volumes, surpassing the previous high set last week.
"Usually the expiration of options sparks high volumes [which contributed to last week's high numbers], but Thursday's events were extraordinary," said Ronit Harel Ben-Zeev, senior vice-president and head of the economics department at the TASE.
Benny Sharvit, head of research at Gaon Investment House said Sharon's incapacitation hit the market because it created doubt over the elections and who would succeed him.
"The market is moved by uncertainty and realizes that this is the end of Sharon's political career," Sharvit said. "He was the most likely winner in the coming elections and now all that has changed."
In the last big shake-up, the politically sensitive market lost 5.2% in August 2005 with the resignation of Sharon's political rival Benjamin Netanyahu from the Finance Ministry. Its worst day ever came in October 2000 with the outbreak of the Intifada when the index lost over 8%, causing a temporary closing of the market.
By law, the TASE suspends trade for 45 minutes when losses reach 8% in a day and close completely when they hit 12%. Analysts were confident that this would not be necessary in the coming days of uncertainty.
While the biggest losses occurred in morning trade, investors were calmed after Bank of Israel Governor Stanley Fisher and Acting Prime Minister Ehud Olmert met and agreed to continue with macroeconomic policy.
"In light of the circumstances, the markets are functioning well and the Bank of Israel will continue to monitor their developments," Fisher said. "The strength of Israel's economy enables it to continue to show stability."
Also calming jittery investors was a report from Sharon's doctor, updating his condition and dispelling rumors that the Prime Minister had died and that an official announcement to that effect was being withheld until after the close of trade.
The day's heavy volumes were dominated by private investors selling mutual funds as foreign investors played a more cautionary game.
Gaon Investment's Sharvit noted that the market showed no panic and that some international companies issued statements expressing their confidence in the economy.
"The weekend will also give investors good time to think things over and assess if it will have a long-term effect on the market," he said.
Ratings agency Standard & Poor's expressed its confidence in the situation by leaving its ratings and outlook on the country unchanged.