South African Rand Rises on U.S. Plan to Calm Financial Markets

By Garth Theunissen

Sept. 19 (Bloomberg) -- South Africa's rand rose against the dollar for a second day as global stocks rallied after the U.S. government announced plans to avert further turmoil in financial markets, stoking demand for higher-yielding assets.

The rand pared a fourth weekly decline after the U.S. Treasury said it would use as much as $50 billion from the country's Exchange Stabilization fund to insure money-market mutual fund holdings against collapse. It also proposed a coordinated plan with the Federal Reserve to implement legislation to help banks clear their balance sheets of illiquid assets.

``The fact central banks have indicated they're ready to bail out troubled financial institutions justifies an improvement in market sentiment,'' said Shahin Vallee, an emerging-markets currency strategist in London at BNP Paribas SA, France's largest bank. ``It makes investors more willing to rebuild positions in South African equities, which is positive for the rand.''

The rand rose as much as 2.9 percent to 7.9350 per dollar, the highest since Sept. 10, and traded at 7.9475 by 2:27 p.m. in Johannesburg, compared with 8.1744 yesterday.

``The interventions announced by authorities has reduced some of the near-term risk in financial markets,'' said Jeff Gable, head of Barclays Plc-owned Absa Capital Research in Johannesburg. ``That's having a positive impact on risky assets and the rand is a prime example.''

Stocks soared around the world after Treasury Secretary Henry Paulson and Fed Chairman Ben S. Bernanke yesterday proposed taking troubled assets away from banks to calm markets. The U.S. Securities and Exchange Commission and the U.K. Financial Services Authority stiffened regulations against short selling of financial shares. Short sellers try to profit by betting stock prices will fall.

Stocks Rally

Europe's Dow Jones Stoxx 600 Index snapped a four-day loss, surging 7 percent, the biggest gain since December 1986 as investors bet efforts to prop up credit markets and curb short selling would halt a slump in equities. The U.K.'s FTSE 100 Index rallied the most since January 1984, adding more than 8 percent in London trading while futures on the Standard & Poor's 500 Index futures gained 3.9 percent.

South Africa's main stock index rallied the most in seven months with the FTSE/JSE Africa All Share Index climbing 5.2 percent, the steepest gain since Feb. 1.

South African government bonds gained, with the yield on the 13.5 percent security due in September 2015 dropping 4 basis points to 9.03 percent, increasing its weekly decrease to 7 basis points. Yields move inversely to bond prices.

To contact the reporter on this story: Garth Theunissen in Johannesburg at gtheunissen@bloomberg.net