Tel Aviv shares closed nearly 7 percent lower on Sunday in the first response of a developed market to Standard & Poor's downgrade of the United States' credit rating that has sparked fears of another global recession.
The Israeli market along with a few emerging markets in the Middle East were the first to trade after S&P late on Friday cut the U.S. long-term credit rating by a notch to AA-plus from AAA due to concerns about the country's budget and climbing debt burden.Israel's market is closed on Fridays and Saturdays.
The Tel Aviv market opening was delayed by nearly an hour as circuit breakers kicked in when shares fell more than 5 percent in pre-market trade.
The last time circuit breakers were used was on Sept. 21, 2008, after the collapse of Lehman Brothers, a stock exchange spokeswoman said.
The market fears the U.S. debt situation could spiral out of control and possibly lead to a "double-dip" economic recession, said Zach Herzog, head of international sales at the Psagot brokerage.
Asked by Channel 2 television if the downgrade was dangerous for Israel, Finance Minister Yuval Steinitz said: "It's not directly dangerous, but it's certainly a warning sign that the global crisis has not yet passed and we still have to navigate the Israeli economy through very rough waters."
"If the U.S. sinks into a recession, the Israeli economy can't come out of that unscathed. We are dependent on sending goods and services out," Herzog told Reuters, noting exports account for 45 percent of Israel's gross domestic product with two-thirds of exports going to the United States and Europe.