The trend on Israel's currency market two days after the U.S. attacks is clear: The shekel is strengthening.

At mid-day Thursday the dollar is trading at NIS 4.3180, after opening the day at NIS 4.3080, 3 agorot less than the representative rate set on Wednesday, of NIS 4.3380.

Dealers say that the dollar's surge right after the attacks on the U.S. on Tuesday had been excessive. It was a natural reaction to the sudden uncertainty, the dealers say.

On Tuesday, after news arrived of the terrorist attacks on New York and Washington, the shekel sank to a three-year low against the dollar. The currency market has been extremely volatile ever since.

But on Wednesday, after an opening surge by the dollar, the shekel started to regain ground as the crisis mood abated, dealers explained. "The day started where it had left off yesterday with the dollar rising in inter-bank trading but as nerves settled the shekel started to gain. When we saw the European bourses rising we realised the crisis mood had passed," said a dealer at Eurotrust.

Yesterday dealers were predicting that the shekel, which has been falling sharply in the past two weeks anyway, would continue its fall in the coming weeks due to ongoing weakness in equity markets and Israeli-Palestinian violence which shows no sign of abating.

Buy/ask spreads this morning have narrowed to 70-80 base points, still twice the normal level. On Wednesday the banks increased the spread to discourage rash trading.