* Israel sees new opportunities in changing industry
* Strong U.S. sales expected for Christmas
* Rapaport sees worsening currency problem in India
By Ari Rabinovitch
RAMAT GAN, Israel, Aug 29 (Reuters) - The Israel Diamond Exchange flexed its muscles this week, hosting a four-day show it hopes will strengthen its position as a major hub, and market leaders voiced optimism the struggling industry would have a strong end to the year.
Hundreds of companies crowded the world's biggest diamond trading floor on the outskirts of Tel Aviv, where buyers, under heavy security and armed with eye loupes, ambled through rows of tables that displayed $2 billion of precious stones.
It was the largest event the exchange had held.
Official figures were not made public, but Yair Sahar, president of the exchange, said sales were in the hundreds of millions of dollars, and he expected the show to provide a $2 billion boost by the end of the year.
"The eyes of the world are watching us. The mining companies, the jewelry manufacturers, they are wishing - 'please be successful'," Sahar said.
Israel is already a key trading centre and diamonds account for about 20 percent of all industrial exports. Manufacturing has dwindled, but trading has thrived, reaching an annual turnover of $25 billion.
Now it wants to expand its role.
The four-building exchange unveiled plans to triple its size, though it could take several years to get the necessary approvals.
And with the industry in flux in the wake of the global financial crisis, Sahar said mining companies such as Alrosa and Rio Tinto were for the first time coming to do business.
"In the last few months we saw all those companies bringing hundreds of millions of dollars of rough to share with the Israeli companies, to share with the manufacturers," he said.
Reuven Kaufman, president of the Diamond Dealers Club, the largest trading centre in the United States, said the event was a chance to bring back the trading floor, which has been overlooked as deals were increasingly made in back offices and on the Internet.
"All of a sudden (dealers) say well, people are trading, we better get in on the act, maybe prices are going to go up. It's very illusionary, it's psychological, in the end it turns into real money," he said.
Kaufman was optimistic that end-of-year sales would be up from last year.
"There is more confidence in America today. They feel America's coming back. I think because of that we'll see a good Christmas season," he said.
About a fifth of the foreign dealers came to the show from India, where a weak rupee has weighed on the global market. About a dozen of them who spoke to Reuters said they believed the currency would stabilise in six months to a year.
India processes more than 90 percent of the world's diamonds, most of which are exported. But the weakness of the rupee, which reached a record low of 68.85 per dollar on Wednesday, could hit Indian demand for rough diamonds.
Martin Rapaport, whose diamond price list is an industry benchmark, said things in India would likely worsen before getting better.
"India is a disaster. And it's unfortunate. The government of India is irresponsible, so people are not going to believe in their currency," he said.
"As long as the Indian government tries to over-manage the (diamond) industry, tries to control the economy, I think India is in for even a worse time."