UPDATE 2-Israeli shekel ticks higher after judicial overhaul, delay trigger volatility

(Updates with closing prices, adds quote in paragraph 5) By Bansari Mayur Kamdar and Karin Strohecker March 27 (Reuters) - An early rally in Israel's currency fizzled out on Monday after Prime Minister Benjamin Netanyahu paused his signature plan to overhaul Israel's judiciary, which had sparked mass protests across the country. The Israeli shekel closed 0.2% stronger against the dollar after strengthening as much as 1.6% earlier in the day on hopes that Netanyahu would halt the move as protests flared overnight following his dismissal of Defence Minister Yoav Gallant for opposing the plans. It was the shekel's most volatile day in three years against the dollar, after earlier having fallen as much as 2.2%. The currency was little changed at the start of the Tuesday session. More volatility could follow as the issue was still far from being resolved, according to analysts.

"We remain of the view that the optimism is premature. Netanyahu is only considering delaying the legislation, not cancelling it. And he risks toppling his own government if he caves to the protesters," said Eimear Daly, emerging markets macro strategist at NatWest in London. While the government says the overhaul is needed to rein in activist judges and set a proper balance between the elected government and the judiciary, opponents see it as an undermining of legal checks and balances and a threat to Israel's democracy. Netanyahu said in a televised address the delay was to reach a broad consensus amid some of the biggest street protests in the country's history. Top officials at Israel's Finance Ministry last week also warned that the plan could seriously harm the economy, according to documents seen by Reuters, citing unease among foreign investors and a shekel that has depreciated sharply to a three-year low. Tel Aviv's main 125 stock index ended the day 1.8% higher, while the long end of the country's domestic curve yield flattened, with the issue maturing in 2042 chalking up the biggest price gains, 1.5 shekel. Meanwhile dollar-denominated international debt came under pressure with the 2043 bond down 0.4 cent, Tradeweb data showed.
(Reporting by Bansari Mayur Kamdar in Bengaluru and Karin Strohecker in London; additional reporting by Rodrigo Campos in New York and Marc Jones in London; editing by Sandra Maler and Stephen Coates)