The Egyptian Exchange's EGX30 index was down around 1.1%, to 4,696 points, by 12:15 pm local time on the first day of the trading week. The index's year-to-date losses are at about 34%.
"To be honest, we were expecting a lot worse than this – maybe a fall of 3 to 4%," said Khaled Naga, a senior broker with Mega Investments. "Even so, I'm not recommending anyone buy at this time. ... There could still be a lot of problems cropping up this week."
The storming of the Israeli Embassy over the weekend was the most serious challenge to relations between the two countries since the signing of the Camp David peace accords in 1979. An angry mob, for hours, lay siege to the embassy, trapping six Israeli guards in a safe room before they were rescued by Egyptian commandoes.
In addition, the head of Egypt's current military rulers was slated to testify in the trial of his ousted former boss, President Hosni Mubarak, who is facing charges in connection with the death of hundreds of protesters during the first days of the January 25-February 11 uprising.
The court has imposed a gag order on the testimony over the coming week, and beyond, to avoid enflaming protesters who have been clamoring for Mubarak to be found guilty and sentenced to death. But in a surprise move, Field Marshal Mohammed Hussein Tantawi did not appear in court and another date was set for the testimony.
The problem in Egypt "is that things go up in flames in a matter of 15 minutes," said Naga.
Hostility toward Jewish state
But in a measure of good news, the government's statistical arm announced Saturday that annual urban inflation had dropped to 8.5% in August, from 10.4% in July. The decline came as food inflation, which accounts for over 40 percent of the consumer price index, increased at a slower pace in the month – 12.2% compared with 16.7% the prior month.
Food inflation, in particular, was seen as one of the factors that fueled Egyptians' frustrations ahead of the January 25 revolution, and a decline in that key figure could help ease some of the economic pressure the country's more than 80 million citizens feel daily.
Analysts warned, however, that Egypt still faced major pressures in trying to retrench and rebuild its economy, even as the country recorded GDP growth of 1.8% in the 2010-2011 fiscal year.
London-based Capital Economics, which is forecasting that GDP will contract by 1% in the current fiscal year, said in a recent research note that given the current global economic climate, "it is too early to expect a rapid recovery."
The incident at the Israeli Embassy spoke not only to the anger over the shooting death of several Egyptian soldiers along the country's border with Israel several weeks earlier, but also the hostility toward the Jewish state many feel in the country despite the peace agreement. The soldiers had been killed as Israeli troops pursued militants who had launched several attacks in the Jewish nation.
It also reflected the pressures and challenges confronting Egypt's military rulers, who are balancing often opposing ends of placating an irate Egyptian populace after Mubarak's ouster and pushing the country toward an elected civilian leadership.
The 18-day uprising that began in late January opened the floodgates to decades of pent up resentment over a widening income disparity, shoddy salaries, poor social and educational systems and the general sense in the Arab world's most populous country that opportunities were something that came through nepotism and cronyism versus skills and perseverance.
The continuing mass protests have battered Egypt's economy, undercutting vital tourism revenue and crimping foreign direct investment.
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