South Africa's Rand Gains on Central Bank Plan to Calm Markets

By Garth Theunissen

Sept. 18 (Bloomberg) -- South Africa's rand advanced against the dollar as stocks around the world recovered after central banks agreed to pump $180 billion into financial markets to avert a widening international credit crisis.

The rand snapped a three-day drop after the U.S. Federal Reserve almost quadrupled the amount of dollars that central banks around the world can auction in a coordinated plan to ease the worst financial crisis since the 1920's. South Africa's currency also gained after the price of gold, which accounts for 7 percent of the nation's export earnings, climbed for a second day as investors sought a haven from financial market turmoil.

``The news that central banks are going to inject liquidity into financial markets has calmed investors,'' said John Cairns, head of foreign-exchange research at Rand Merchant Bank in Johannesburg. ``That's giving traders more confidence to move back into riskier assets.''

The rand gained as much as 1.3 percent to 8.1575 per dollar and was at 8.1658 by 12:42 p.m. in Johannesburg, from 8.2650 yesterday. It rose versus 14 of the 16 major currencies monitored by Bloomberg, adding 0.7 percent against the euro to 11.7622.

The Fed increased the amount of dollars that European Central Bank, Bank of Japan and other counterparts can offer to $247 billion from $67 billion ``to address the continued elevated pressures in U.S. dollar short-term funding markets.'' The Bank of England, the Bank of Canada and the Swiss National Bank also participated in the plan which allows the Fed to spread dollars around the world via swap lines with other central banks who can then auction them in their own markets.

Stocks Advance

European stocks and U.S. index futures climbed while Asian shares pared declines after the plan was announced. Europe's Dow Jones Stoxx 600 Index climbed as much as 1.2 percent in London while futures on the Standard & Poor's 500 Index added 1.2 percent. The MSCI Asia Pacific Index declined 1.6 percent, paring an earlier drop of as much as 4.3 percent.

South Africa's currency also strengthened as gold gained as much as 3.4 percent to $892.93 an ounce after jumping more than 11 percent yesterday in the wake of the U.S. government's takeover of American International Group Inc. About $3.6 trillion of market value has been erased from global stocks this week as financial market turmoil intensified with the bankruptcy of Lehman Brothers Holdings Inc., prompting investors to switch funds into safe-haven assets.

``The dollar has lost ground and that has helped gold extend its recovery, particularly as investors flee to safer assets,'' said George Glynos, managing director in Johannesburg at Econometrix Treasury Management, which advises clients on bond and foreign-exchange transactions. ``Higher precious metal prices are certainly a help for the rand in an environment of severe market turmoil.''

South Africa produces about 10 percent of the world's gold, often causing the nation's currency to move in tandem with the price of the metal.

Government bonds gained with the yield on the benchmark 13.5 percent security due September 2015 losing 2 basis points to 9.05 percent. The yield on the 13 percent note maturing in August 2010 dropped 4 basis points to 9.74 percent. Yields move inversely to bond prices.

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