The shekel is gaining strength Thursday morning despite the escalation on the security front after the Hamas bombed a Hebrew University cafeteria on Wednesday, killing at least seven people and wounding almost 80.

The dollar is sagging 0.25% versus its Wednesday representative rate to NIS 4.677, after weakening yesterday to NIS 4.66. But the blast in Jerusalem reversed the trend on the currency market, for a while.

Dealers say there are two main pillars supporting the shekel today: traditional month-end selling of dollars as exporters and businesses to pay local salaries and bills, and the fact that the government approved, however narrowly, a tight budget for 2003.

Negative weights on the shekel include the military escalation following the assassination of Hamas leader Salah Shehadeh and the deaths of 14 other people. Roads and highways are jammed in central Israel this Thursday morning due to security checkpoints, after the police received urgent warnings of planned attacks.

Dealers at Prico, an investment house that specializes in the currency market, believe that the budget cuts will bolster shaken public confidence in Israel's economic leadership, which has contributed to the shekel's appreciation.

But the attack on Hebrew University has restored the uncertainty, based on estimates that Israel will respond massively, which led the shekel to slide to NIS 4.69. At that level, however, speculators started selling foreign currency, the Prico sources noted.

In the mid-term Prico sees the dollar rising against the shekel to NIS 4.85 or more.

In the immediate term, Prico's analysts say that if the shekel weakens to NIS 4.7, the supply of foreign currency may pick up as the business sector steps up sales of foreign currency.

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