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Shekel Drops to Lowest Since January Amid Iran Threat, Economy

The shekel fell to the lowest level in more than a month as demand for riskier assets waned amid mounting concern over Iran’s nuclear program and the impact of Europe’s debt crisis on the local economy.

The shekel weakened 0.8 percent to 3.8048 a dollar at 4:46 p.m. in Tel Aviv. The currency earlier lost as much as 1.1 percent to 3.8131, the lowest since Jan. 18. The IntercontinentalExchange Inc.’s Dollar Index, which tracks the U.S. currency against those of six major trading partners including the euro and yen, gained for the first time in three days, advancing 0.4 percent.

Israeli Prime Minister Benjamin Netanyahu said yesterday a “central subject for discussion” during his meetings with U.S. President Barack Obama and Canadian Prime Minister Stephen Harper later this week will be Iran’s possible pursuit of nuclear weapons. Bank of Israel Governor Stanley Fischer raised concern last week about growth in Europe, one of his country’s biggest export markets. Exports make up about 40 percent of the Israeli economy.

“The mounting threat of Iran and concern about the impact of the debt crisis on local economic growth is pushing investors out of the shekel on a flight to safer assets,” Rony Gitlin, head of spot trading at Bank Leumi Le-Israel Ltd. in Tel Aviv, said by telephone.

Five-year credit-default swaps increased two basis points to 192, the highest level since Jan. 31, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

Policy Meeting

European leaders will shift their focus this week from a Greek bailout to the prospect of bolstering the region’s firewall against debt-crisis contagion as they ready for their latest summit. As the European Central Bank prepares a second round of cash lending to help shore up the region’s banks, policy makers are focused on preventing a Greek collapse in order to take advantage of signs of an improved global economy.

The Bank of Israel’s monetary committee, led by Fischer, may leave the benchmark lending rate unchanged at 2.5 percent, according to all of 24 economists surveyed by Bloomberg. The bank announces its decision at 5:30 p.m. today. One-year interest rate swaps, an indicator of investor expectations for rates over the period, fell three basis points to 2.45 percent. The rate increased 11 basis points so far this month.

Debt Sale

The Finance Ministry sold 1.55 billion shekels ($408 million) of debt at an auction today, bringing the total this month to 6 billion shekels. Investors submitted bids for 3.9 times the 300 million shekels of the benchmark bonds offered compared with 4.6 times at last week’s sale. The government also sold 250 million shekels of the 3.5 percent notes due August 2014.

“Investors did not rush to buy the benchmark bonds at the auction amid expectations that rates will remain on hold today,” said Oren Ossad, a bond trader at Excellence Nessuah Investment House Ltd. in Ramat Gan, Israel.

The yield on the benchmark 5.5 percent bonds due January 2022 was unchanged at 4.65 percent. The one-year break-even rate, the yield difference between the inflation-linked bond and fixed-rate government bonds of similar maturity, rose 12 basis points to 269, implying an average annual inflation rate of 2.69 percent.

The Ministry of Finance cut its forecast for economic expansion this year to 3.2 percent from 4 percent, Finance Minister Yuval Steinitz said on Jan. 18. The central bank in December lowered its prediction to 2.8 percent from September’s estimate of 3.2 percent.

The Tel-Bond 40 index of corporate bonds declined for a fourth day, falling 0.2 percent to 262.78.

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