South African Rand Strengthens Against Dollar as Stocks Rally

By Garth Theunissen

Oct. 28 (Bloomberg) -- South Africa's rand rose to the highest in a week against the dollar as stocks around the world rallied, reviving demand for higher-yielding, emerging-market assets.

The rand also gained versus the euro as the MSCI Asia Pacific Index added 3.1 percent, reversing a 19 percent slump in the previous four days, and Standard & Poor's 500 Index futures gained 4.7 percent. South Africa's FTSE/JSE Africa All Share Index, down almost 35 percent this year, jumped 3.2 percent, its first advance in five days.

``There has been a massive fallout in equity markets but sentiment is starting to improve and that's helping to slow the sell-off in risky assets,'' said Brigid Taylor, a senior currency trader at Rand Merchant Bank in Johannesburg. ``The rand has been badly burnt and is now starting to pull back a bit as sentiment improves.''

The rand strengthened as much as 4.9 percent to 11.4487 per dollar, the strongest level since Oct. 21. It traded at 10.7087 by 9:48 a.m. in Johannesburg, from 10.9900 yesterday, when it fell as low as 11.4737. It climbed versus 14 of the 16 most- actively traded currencies monitored by Bloomberg, appreciating 2.5 percent against the euro to 13.3837.

The rand may ``potentially move to 10.54 today if it sustains the break below 10.80,'' Taylor said. ``The move opens up a lot of potential on the downside,'' she said. It may trade between 10.05 and 10.30 per dollar by the end of the week, Taylor added.

`Oversold Territory'

Stocks rebounded on speculation a global sell-off that has wiped about $36 trillion from equity markets this year was overdone. Equities from Brazil to Korea have slumped in recent weeks as the seizure in credit markets stoked concern more financial institutions may fail following the collapse of Lehman Brothers Holdings Inc on Sept. 15.

``The rand has been in free-fall and has reached oversold territory,'' said Michael Keenan, a currency strategist at Standard Bank Group Ltd. in Johannesburg. ``There's very little momentum left behind rand weakness, which makes it very difficult for speculators to keep selling the currency.''

South Africa's currency also gained after gold climbed as much as 3.5 percent and platinum rallied as much as 8.2 percent. Africa's biggest economy produces almost 80 percent of the world's platinum and about 10 percent of its gold.

Government bonds advanced, with the yield on the 13.5 percent security due September 2015 losing 14 basis points to 9.39 percent. The yield on the 13 percent note maturing in August 2010, which is more sensitive to interest-rate expectations, dropped 20 basis points to 10.28 percent. Yields move inversely to bond prices.

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