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Shekel Reaches Three-Month High on Stocks Rally; Bonds Decline

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Oct. 4 (Bloomberg) -- The shekel reached the highest in more than three months as a four-week stock rally fueled demand for the currency. Israel’s benchmark government bonds declined for the first time in seven days.

The shekel rose 0.8 percent to 3.8584 a dollar, the highest since June 19, at 6 p.m. in Tel Aviv. The currency has gained 1.2 percent this week. The TA-25 benchmark stock index has rallied 9.4 percent since the end of August on investor bets the economy will weather the global slowdown.

Economic growth accelerated to the highest in a year in the second quarter powered by exports while inflation jumped in August. The Bank of Israel last month raised its growth forecast for this year to 3.3 percent from its June estimate of 3.1 percent. Growth in the Group of 10 industrialized nations will slow to 1.3 percent, according to economist forecasts compiled by Bloomberg.

“The stock market has been on a very bullish trend and all that money flowing in is bound to lift the shekel,” said Moshe Nir, a trader at Mercantile Discount Bank Ltd. in Tel Aviv.

Yield Gains

Israel’s foreign currency reserves rose by $610 million to $76.2 billion in September, the Bank of Israel said today. Israeli Prime Minister Benjamin Netanyahu may call early elections if his coalition partners don’t back a budget for next year that is within the deficit limit, an official said yesterday.

One-year interest rate swaps, an indicator of investor expectations for the benchmark rate in the period, were unchanged at 2.14 percent. The yield on the benchmark 5.5 percent government bond maturing in January 2022 gained five basis points, or 0.05 percentage point, to 4.23 percent.

The two-year break-even rate, the yield difference between inflation-linked bonds and fixed-rate government bonds of similar maturity, narrowed three basis points to 279, implying an average annual inflation rate of 2.79 percent.

The Tel Aviv Bond 40 Index, which measures inflation-linked and fixed-rate corporate bonds, was little changed at 274.06.

To contact the reporter on this story: David Wainer in Tel Aviv at dwainer3@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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