Tel Aviv shares closed 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 on Friday cut the U.S. long-term credit rating by a notch to AA-plus from AAA due to concerns about the nation's budget and climbing debt burden.
The TA-25 blue chip index closed down 6.99 percent to 1,074.27 points and is down 18 percent since the start of the year. The broader TA-100 slid 7.2 percent. Israel's market is closed on Fridays and Saturdays.
The Tel Aviv market's 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 spokeswoman for the stock exchange said.
The market fears the U.S. debt situation could spiral out of control and possibly lead to a double-dip recession, said Zach Herzog, head of international sales at the Psagot brokerage.
"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. (more)