Tel Aviv blue chips closed with a 1% drop after spending most of the session deep in red territory. The session was characterized by heavy selling on high turnover, after reports this morning of hostilities breaking out on Israel's northern border with Lebanon and further violence in the West Bank.

In addition, Israel's leaders have been sounding increasingly pessimistic although Prime Minister Ehud Barak denied that he yesterday ordered the Israeli army to prepare for all-out war. He clarified that he had told the army to step up preparations a full three months ago.

But steep morning losses of 4% and counting were moderated in afternoon trade by optimistic futures on Nasdaq. Investors were also cheered shortly before closing by media reports, later qualified, that the Palestinians had agreed to the U.S. proposal as a basis for further negotiations.

The Maof-25 index of blue chips lost 1% to 479.21 points. The TA-100 index shed 1.73% to 460.81 points. The Tel-Tech technology index lagged behind throughout, closing off 4.8%. Total turnover was relatively high at 417 million.

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Generic drugs giant Teva Pharmaceuticals (Nasdaq:TEVA) sank by 7% after beginning on a hefty arbitrage gap. Teva led the list of most-traded shares on enormous turnover of NIS 83 million, after its partner Biovale (Toronto:BVF) warned that its sales of generic drugs would not meet forecasts in 2001.

Bank Leumi gained 0.33% against the trend on high turnover after bank CEO Galia Maor publicized aggressive marketing plans for 2001. Bank Hapoalim lost 2%, also on high turnover, despite several warm recommendations by analysts.

Formula Systems (Nasdaq:FORTY) announced the delisting of its subsidiary Mashov Computers from the TA-100 index this morning, subsequent to its tender offer to buy back Mashov shares from the public. Mashov gained 0.5% and Formula lost 1.2%. The TASE also learned that tycoon Yitzhak Tshuva has become a substantial shareholder in Formula, with an equity interest greater than 5%.

Nice Systems (Nasdaq:NICE) dived 19% after opening on about that arbitrage gap. The company suffered from serial downgrading today. ING Barings cut it to Hold but left its target at $18.5, about 10% above the market.