A fragmented right-wing government could threaten the country's image of having a stable economy and deter investors, according to some investment houses. "The question of who will sit in the prime minister's seat does not seem to carry much importance for the economy, since the ideological differences are slight between the three main parties, at least economically," Ori Greenfeld, an economist at Clal Finance, said Wednesday. "However, a right-wing-led government including entities that are considered extreme is likely to raise concerns among local and foreign investors and damage Israel's image of a stable economy." The day after Knesset elections, the Tel Aviv-25 Index dropped 2.6 percent and the TA-100 Index fell 2.6%. "The declines on the Tel Aviv Stock Exchange are a sign that investors are in a waiting position until a new coalition is formed," Giora Zarechansky, CEO of Direct Investment House, said Wednesday. "It seems that the falls are a reaction to the sharp falls on the US markets a day earlier and not necessarily only a reaction to the political events. "But at the same time, the election results are problematic, as it looks like a coalition can only be formed with the addition of sectorial parties, who will make it more difficult to take essential decisions necessary for the economy." "In light of the difficult economic situation," Zarechansky said, "courageous steps are needed that demand the support of the broad public, including cuts in the pubic sector, dealing with a growing budget deficit, and additional steps that will damage the standard of living of each of us. A government that will distance itself from taking dramatic efficiency steps will only deepen the recession." Haim Israel, an analyst at Merrill Lynch, said that with no clear majority, the coalition was likely to include as many six or more parties, making it fragile. He said President Shimon Peres would likely assign the task of forming the next government to Likud chairman Binyamin Netanyahu. "All parties have similar economic agendas," Israel said. "A Likud-led coalition may pave the way for concerns over a wider budget deficit, as Netanyahu and his likely coalition partner Avigdor Lieberman have sounded more aggressive on fiscal easing, including additional tax cuts. "Netanyahu was seen as the gatekeeper of fiscal discipline during his last term as finance minister, when he held a very strong political position within a central-liberal coalition. However, as prime minister of a narrow coalition government, the situation could change." Together with potentially hard-line views on regional politics, these concerns may build pressure on the shekel in the short term, Israel said. "With inflation expected to remain low, the Bank of Israel might consider cutting interest rates Ã la [US Federal Reserve Chairman Fred] Bernanke, all the way down to 0.25% from the current 1%," he said.