Israel's rapid economic growth will not be significantly affected in the short term by the recent wave of Islamist terrorism, and foreign investors remain confident about the future prospects of the economy and its stock market.

Analysts and businessmen said Thursday that foreign and local investors on the Tel Aviv Stock Exchange had shown considerable resilience compared to a few years ago when terrorist attacks caused huge disruption in the market.The Mishtanim index of the top 100 blue-chip stocks closed Thursday at 206.11, down just 1.2 percent from its level two weeks ago before a spate of Islamist attacks killed 57 people.

"Three years ago there would have been large sell-offs, but the market is much more mature now," said Shachar Gazit, a senior trader at Batucha Securities in Tel Aviv. "Investors today look much more at micro and macro economic factors rather than political events."

Investor confidence and the recent stability of the market reflect a growing realization that terrorism has little impact on the fundamentals of economic growth, monetary and fiscal policy and corporate earnings, which are set to grow 16 percent this year.

Israel's economy has had average annual growth of 6.5 percent in the past three years and is expected to grow 6 percent this year. Foreign investment more than doubled in 1995. According to central bank figures, foreign investment rose from $1.04 billion in 1994 to $2.11 billion last year. Nearly half of this - $990 million - was invested in the stock exchange and in new shares issued by Israeli companies abroad.

Investors are aware that many important benefits to Israel from the Middle East peace process have already been delivered - new trade opportunities in Asia, a trade association agreement with the European Union and the arrival of European and Japanese investors and banks after a prolonged absence.

Negative economic effects from the terrorist attacks are viewed as short-term. Israel's closure of its borders with Palestinian territories will drive up the prices of fruit, vegetables, construction materials and labor, putting further pressure on the consumer price index and the government's battle to keep inflation under 10 percent. The image of violence could also harm tourism, and there have already been reports of booking cancellations.

But these negative effects are unlikely to affect investors. More important is the growing concern that terrorism will harm the electoral chances of Israeli Prime Minister Shimon Peres and the Labor-led coalition government.

Foreign and local investors want Peres re-elected because they believe a right-wing Likud victory would torpedo fragile Middle East peace.

And although the economic policies of the Likud and Labor parties are broadly similar, investors believe a Labor victory would guarantee stability and coherence of economy policy and enable the government to deal swiftly with its unfinished economic agenda.

Victor Halpert, Israel analyst at Salomon Brothers, said that "foreigners believe a Likud victory would end the peace process and lead to more government force against Palestinians, which would have negative effects on tourism and economic growth. Growth could slow from 6 percent to 4.5 percent under Likud."

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But with almost three months to go until the May 29 election, political concerns are still much less important to investors on the stock market than interest rates and the absence of domestic liquidity.

"Interest rates have been, and are, the No. 1 factor," said Gazit.

Analysts said the lack of any investor withdrawal from the $60 million initial public offering of shares in government-controlled Israel Discount Bank, which closed Thursday, was proof of continuing confidence.

(Distributed by Scripps Howard News Service.)

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