South Africa Rand Advances as Stocks Rise on Bank-Support Plan

By Garth Theunissen and Nicky Smith

Oct. 13 (Bloomberg) -- South Africa's rand rose against the dollar, snapping a six-day loss, as stocks rebounded after governments in Europe, the U.S. and Asia agreed to support banks, fueling demand for emerging-market assets.

The rand rebounded from its weakest level in almost six- years against the U.S. currency after European leaders agreed to guarantee new bank debt and the U.K. pledged 37 billion pounds ($64 billion) for Royal Bank of Scotland Group Plc, HBOS Plc, and Lloyds TSB Group Plc. Stocks rallied around the world after their worst week of losses since 1987.

``All the higher-yielding currencies are strengthening, which is all down to government bank-support plans,'' said Robert Beange, an emerging-market currency strategist in London at JPMorgan Chase & Co. ``The plans reduce further risks to the global financial system.''

The rand ``will strengthen with most emerging-market currencies for the next few days'' but may reverse gains ``once the reality of a global recession sinks in,'' Beange said.

``The problems for emerging-market currencies aren't going to disappear,'' he said. ``Commodity-backed currencies are particularly vulnerable to a worldwide recession.''

The rand rose as much as 3.7 percent to 9.1240 and traded at 9.2549 by 11:40 a.m. in Johannesburg, from 9.4694 on Oct. 10, when it fell as low as 9.4901, its weakest level since November 2002. South Africa's currency advanced against 11 of the 16 most-actively traded currencies monitored by Bloomberg, climbing 0.8 percent against the euro to 12.5866.

Stocks Soar

Stocks rose around the world after governments from Europe to Australia moved to guarantee bank deposits. The MSCI World Index added 2.5 percent, rebounding from its worst week on record. Futures on the Standard & Poor's 500 Index rose 5.8 percent. South Africa's FTSE/JSE Africa All Share Index jumped 3.4 percent.

Stock markets ``seem a little more bullish,'' after the G-7 meeting this weekend, Ian Martin, a senior currency dealer at Rand Merchant Bank, said in an interview from Johannesburg. The rand may rise to as much as 8.93 to the dollar today, he added.

Government bonds were little changed to lower. The yield on the 13.5 percent security due September 2015 was little changed at 8.99 percent. The yield on the 13 percent note maturing in August 2010 dropped 3 basis points to 9.25 percent. Yields move inversely to bond prices.

To contact the reporters on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net; Nicky Smith in Johannesburg nsmith38@bloomberg.net