ISRAEL - March 1 - Sluggish Market.

Gloomy economic forecasts, an open-ended Israeli-Palestinian conflict and political confusion since the Feb. 6 election of Sharon as PM have left the Tel Aviv Stock Exchange in a lethargic mood. Average daily trading volume has plunged from $69m during January to about $35m over the past week. Remaining foreign investors are sitting on the fence. The TA 100 blue chip index, which has moved in no clear direction as of late, slips 1.65 to 449.36. Richard Gussow, Israel analyst at Lehman Brothers in Tel Aviv, says: "It's the same story every day. The intifada (uprising), the slowdown and political uncertainty". Earlier this week, the market yawned when the finance ministry slashed GDP projections for 2001 from 4-4.5% to 2-3%. The economy is suffering from the Palestinian uprising. The bloodshed continues to batter tourism and the construction sector, which has lost tens of thousands of Palestinian employees barred by Israel.

Nasdaq's woes will also deal a blow to the technology industry. Nevertheless, Moody's this week maintained Israel's long-term foreign currency debt rating at A2, saying slowing growth would be a one-time event. Economic advances in recent years, said Moody's, meant a "reduced likelihood that negative geopolitical developments will lead to serious medium-to-long term distortions in economic development". The market's biggest hope is domestic political stability. "The market wants a national unity government because of the economic reform potential", says Gussow. In the mid-1980s, it was a national unity government that successfully pushed through reforms that saved Israel from rampant hyperinflation. A new national unity government might be capable of reviving the tax reform package shot down last year. This could energise the sleepy market. Yet Sharon's economic policies remain unclear. His Likud Party has traditionally been more laisser faire than Labour. However, Sharon is a big spender, and not a big fan of privatisation. Recent political chaos has left Israel operating without a budget, which he must push through by the end of March or face new elections. But parties have exploited the political vacuum to push through bills that would cost the state Shk 3 bn. Should he succeed, investors will be watching to see whether Sharon pursues his predecessors' policies of reducing the budget deficit and targeting low inflation.