(Adds stocks, bonds reaction, traders, analysts comments)
By Tova Cohen
TEL AVIV, June 24 (Reuters) - Israeli stocks, bonds and the shekel traded lower on Monday, taking their cue from European and Asian markets despite investors generally welcoming news of Jacob Frenkel returning to the post of Bank of Israel chief.
The markets are also awaiting the Bank of Israel's interest rate decision later in the day - the last for outgoing Governor Stanley Fischer. Analysts are split between expecting no change and forecasting a quarter-point reduction following two similar cuts in May aimed at curbing the shekel's rally.
Prime Minister Benjamin Netanyahu said late on Sunday he had chosen Frenkel, who was governor of the central bank from 1991 to 2000, as the next central bank governor. If approved by the cabinet, Frenkel will succeed Fischer, who steps down at the end of the month after eight years on the job.
Frenkel was widely credited with sharply reducing inflation in Israel, liberalising the country's financial markets and removing foreign exchange controls.
"He's got all the credentials. He's got the experience, the connections, he's the kind of internationally recognised economist that Netanyahu wanted to put in to replace Fischer," said Steven Shein, a trader at Israeli brokerage Psagot.
"But it's not having much of an impact. The market is so depressed due to a lack of (buying) interest that apart from something really significant nothing will really move (it) much."
Israel's stock market has suffered a significant drop in trading volumes since it was upgraded by MSCI to developed market status from emerging in May 2010. It suffered another setback this month after the exchange's application to join the MSCI Europe index was rejected.
The blue chip Tel Aviv 25 index was down 0.6 percent while the shekel was at 3.641 per dollar compared with Friday's close of 3.634.
Israeli 10-year government bond yields rose 7 basis points.
During his previous terms as governor, Frenkel dealt mainly with inflationary problems by raising the benchmark rate. He succeeded in lowering inflation to 1.3 percent in 1999 from 18 percent in 1991. (Editing by Jeremy Gaunt.)