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The shekel weakened by 1.2% Wednesday in nervous trade to 4.89 to the dollar. Dealers described trade as volatile and blamed the shekel's sogginess on growing fears of a sovereign credit rating for Israel, and on the scenario of an American attack on Iraq.

Trading volumes were higher than usual, with brisk interbank action and heavy buying by companies, dealers said.

Bank Hapoalim senior dealer Daniel Hass told


that plans for a U.S. attack on Iraq and the weakness in U.S. stocks are also pressuring the shekel. "Iraq is still there, there was the dossier published by the British yesterday," Hass said, referring to a British report that said President Saddam Hussein could launch a chemical or biological warhead at just 45 minutes' notice.

Sources at the Excellence dealing room attribute the shekel's weakness to the same factors pressing it down for days: the negative trend on Wall Street, the hostilities in Ramallah, and the anticipated American-British attack on Iraq. But the immediate source of anxiety is the looming threat of a sovereign credit downgrade for the State of Israel, from A-minus to BBB+, after the biggest banks were cut last week. The fact that Israel's economic leaders are in the United States and plan to meet with the rating agencies to discuss Israel's status, is not easing the apprehension.

On the flip side, the Bank of Israel decided on Monday to leave nominal lending rates on the shekel unchanged at 9.1%, which supports the Israeli currency.

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The trend was clear from the get-go as the dollar started to climb, peaking at a high of NIS 4.896 before subsiding, only to reverse again and climb to close at the official rate of 4.89. In trade after the representative rate was set, the dollar reversed again to trade at NIS 4.882.

Trade was highly nervous today, with heavy demand for greenbacks streaming from companies and the banks, but heavy selling of dollars was palpable above NIS 4.90, dealers said.

Since September began, the dollar has strengthened by 23 agorot, a gain of 4.9% against the shekel. In the last week alone, the dollar expanded by 6 agorot.

Excellence told TheMarker earlier today that if the dollar breaches NIS 4.86, it could break through to NIS 4.90, an estimation that proved accurate. They see the next resistance level at NIS 4.91 to the dollar. Passing that could lift the dollar all the way to NIS 5.

"Technically, the dollar broke some strong resistance levels, first at 4.8650 and then 4.88," Hass told