Merrill Lynch report weighs on local stocks

Israeli shares closed lower Tuesday, as the banks weakened after Merrill Lynch said it saw tough times ahead for the sector, and said much of what drove Israel's market in 2006 is now priced into the country's shares.

MarketWatch: In-depth global business coverage SHARES TEL AVIV Israeli shares closed lower Tuesday, as the banks weakened after Merrill Lynch said it saw tough times ahead for the sector, and said much of what drove Israel's market in 2006 is now priced into the country's shares. The benchmark TA-25 index fell 1.1 percent to 922.98, the TA-100 shed 0.84% to 933.50, and the Tel-Tech index of 15 top technology issues edged down 0.08% to 372.84. The most-active issue was Teva Pharmaceutical, which gained 0.5% to NIS 139 as one of only four rising stocks in the benchmark index. Next on the most-active list were Bank Hapoalim off 1.4% to NIS 19.81, and Bank Leumi down 1.7% to NIS 16.96. One day after HSBC maintained an "underweight" rating on Israel's stock market, Merrill Lynch said the Morgan Stanley Capital International Israel index "will continue to lag [global emerging-markets] performance in 2007, and we expect market 2007 returns in the high single-digit range." Analyst Haim Israel wrote that the "elements which propelled the market in 2006 - [emerging-market] returns, liquidity and macroeconomic fundamentals - are moderating or already factored into share prices." The Merrill analyst does have some favorite sectors, telecoms for one. Local telecom provider Bezeq, his top pick," has all the ingredients to outperform," including a strong dividend yield and earnings momentum. Bezeq shares slipped 0.5% to NIS 6.78. Partner, the Israeli affiliate of the Orange cellular network, should see a dividend yield triple that of global emerging markets in 2007, the analyst wrote. The shares fell 1.1% to NIS 50.84 on Tuesday. Ormat Industries' market fundamentals and product pipeline are strong, Israel wrote. Ormat Industries, which edged up 0.1% to NIS 48.23, is the parent of power-plant producer Ormat Technologies . Markets for the chemicals producers - Makhteshim-Agan and Israel Chemicals - look "solid," with MA the better value, the analyst says. MA shares rose 0.4% to NIS 24.49 while ICL shares fell 0.6% to NIS 24.95. Low interest rates mean residential real estate will continue to outperform, Israel said, without citing specific companies. Two key names in the sector are Azorim, down 0.6% to NIS 60.02, and Africa-Israel Investments, down 3.2% at NIS 304.50. But for the banks, Israel wrote, "2007 will be challenging," and the firm doesn't "support a strong call there." The Tel Aviv Banking index sank 1.51% to 1,293.27. Besides Hapoalim and Leumi, Discount fell 2.1% to NIS 9.02 and Mizrahi-Tefahot lost 1.7% to NIS 30.45. First International Issue 5 swam against the tide, rising 1.2% to NIS 57.42. AudioCodes rose 2% to NIS 41.44. Merrill Lynch reiterated a "buy" rating and $14 price target on the producer of network technologies. Radware rose 0.6% to NIS 65.9. The producer of networking solutions was reiterated "neutral" at Merrill Lynch, which said factors including competition from Cisco, F5 and Citrix, and some more-saturated market segments are hurdles. TA-100-listed Tower Semiconductor Ltd. jumped 3% to NIS 7.58. The company said it would produce sound generators for Modiotek Co., a spin-off from Macronix International Co. of Taiwan. The generators will be integrated in ultra-low-cost phone handsets. Tower was also initiated "buy" at Clal Finance Batucha, as analyst Beni Dekel put a NIS 10.1 price target on shares of the semiconductor foundry. WALL STREET US stocks pared some losses but remained broadly lower Tuesday, as a continued slide in crude oil prices unnerved investors. The Dow Jones Industrial Average was down 20 points, or 0.2%, at 12,401 but had been down as much as 54 points earlier in the session. The S&P 500 was off 2 point, or 0.1%, to 1,410 but the Nasdaq Composite Index rose 2 points, or 0.1%, to 2,440. EUROPE Stock markets in Russia and Norway took a tumble Tuesday as crude oil's rout in the energy pits continued, while oil majors such as BP pressured indexes elsewhere in Europe. Still, bourses in London, Germany and France eked out modest overall gains, helped by some positive broker upgrades across several sectors. The pan-European Dow Jones Stoxx 600 index rose 0.4% to 366.72, supported by strength in the chemicals, construction and travel sectors. The commodity-sensitive UK FTSE 100 index performed worse than its European peers, closing up just 0.03% at 6,196.10 as oil prices sank. ASIA Stocks ended mostly higher across the Asia-Pacific region Tuesday, with share indexes in Japan and Australia gaining as Sony Corp. advanced after a broker upgrade and BHP Billiton fronted a rebound among resource stocks. In Tokyo, the Nikkei 225 Index ended 0.9% higher, rising 146.18 points to 17,237.77, and the broader Topix index rose 1%, or 16.79 points, to 1,692.12. Financial markets had been closed Monday for a national holiday. CURRENCIES The dollar rose against most major currencies Tuesday, boosted by the continued slump in oil prices and after a recent US payrolls report dashed hopes the Federal Reserve would lower interest rates soon. In New York trading, the dollar was quoted at 119.42 yen, compared with 118.73 yen late Monday. The euro stood at $1.2998, compared with $1.3019. COMMODITIES Crude oil futures were down 42 cents at $55.67 a barrel in afternoon trade in New York. The February contract had been down as much as $2.21, or 3.9%, at an earlier low of $53.88, which was the lowest price seen since June 2005. Gold prices turned higher, erasing earlier losses. The February contract was up $4.30 at $613.70 an ounce. MarketWatch: In-depth global business coverage