The TA-25 index, which includes the 25 largest Israeli companies by market capitalisation, dropped to finish at 767.61 points while the Tel-Tech index, tied to the booming hi-tech industry, sank 11.81 percent to 149.91 points.

In the first 20 minutes of trading the main index briefly dropped by 8.59 percent to 729.40 points, reflecting falls in world markets that took place over the long Yom Kippur holiday weekend.

The bourse had delayed its opening by 45 minutes after preliminary deals saw stocks dive more than eight percent. The stock exchange is required to suspend trading if share prices fall more than five percent.

Outgoing Prime Minister Ehud Olmert tried to reassure the market at a weekly cabinet meeting, telling reporters: "If we continue to act responsibly then the Israeli economy can overcome the global crisis."

Israeli stocks had initially seen heavy losses from the global financial crisis but surged last week after the Bank of Israel announced a 0.5-point cut in its base rate, to 3.75 percent.

Before the onset of the global financial meltdown, Israel's economy was expected to grow 5 percent in 2008.

Losses from the financial crisis threaten to end six years of growth in the Israeli economy, the longest-running expansion in the country's six-decade history.

But the government has so far ruled out direct intervention in the markets or a bank bailout.

The parliament's finance committee held an emergency meeting late Sunday with Finance Minister Roni Bar On and central bank governor Stanley Fischer taking part.

"We want to help Israel's economic recovery despite the difficult situation abroad," said Fischer.

The TA-25 will be closed on Monday and Tuesday for another Jewish holiday.

© 2008 Agence France-Presse