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Tel Aviv blue chips ended Sunday below the psychologically significant 350-point benchmark as Israel drafts reserves and the hostilities continue unabated.

Stocks lost more than 2% and bonds took a beating as the public dumped investments in mutual funds.

Losses were exacerbated by slumping prices on Wall Street over the weekend after a slew of companies issued earnings warnings, including Israeli billing & customer care software giant Amdocs (NYSE:DOX). That company saw its stock crash 41% on the New York Stock Exchange after warning investors of disappointing revenues to come.

The Maof-25 index finished down 2.1% to 348.1 points and the Tel Aviv-100 index fell 2.2% to 339.5 points. Tech stocks tumbled by 3.7% to 202.9 points. Total turnover was slim at NIS 228 million, after action picked up somewhat in the afternoon.

Other influences on trade this week include tomorrow's announcement by the Bank of Israel on monetary policy for July, and the expiry of options on the Maof-25 index this Thursday.

The Bank of Israel governor is expected to raise interest rates by at least 1% for July, though some pundits expect a much sharper rate rise in view of the weakening shekel. DBM Investment House manager Rami Dror says the market is factoring in a 2% rate hike, but he himself expects no more than 1.5%. In any case, he does not see the rate hike affecting the dollar much.

Market sources surmise that mass redemptions from mutuals drove down bond prices today. Bank Hapoalim mutuals manager Dror Nagel estimated that the public withdrew a stunning billion shekels from mutual funds, including ones linked to the dollar, in the worst blow the industry has taken in years.

The withdrawals dealt harsh blows to the capital market: Short-term certificates dropped by an average of 0.4% with their yields jumping to 11%. Shahar bonds went down by 2% on average. Returns on long-term Shahars maturing in 2011 reached 11.7%.

Last week the public dumped shekel-based investment vehicles in droves, withdrawing more than NIS 500 million from shekel-denominated funds. Nagel believes the sum to be closer to a billion shekel. Market sources say the money is going back to the banks, to high-interest deposits offering more than 6% in annual terms.

Giant Teva Pharmaceuticals (Nasdaq:TEVA) lost 2.4% on NIS 30 million turnover.

The banks lost ground as the session wears on, with Hapoalim losing 2.4%, and Leumi down 2.6%.

The IDB group stocks also sagged this Sunday after news that Nochi Dankner, leader of the consortium that wants to take over IDB Holding Corporation, may be forced to borrow the money to do so from abroad, because of regulatory restrictions. Weighty IDB Holding Corporation fell 1.9% and IDB Development Corporation lost 1.8%, both on fairly slim turnover.

Another IDB group company, Clal Industries, fell 3.3% and its sister company Discount Investment Corporation lost 1.7%.