South Africa's Rand Advances for a Second Day on U.S. Bank Plan

By Garth Theunissen

Oct. 14 (Bloomberg) -- South Africa's rand rose against the dollar for a second day as the U.S. followed European governments in buying bank stakes to ease financial-market strains, reviving demand for higher-yielding emerging-market assets.

The gains sent the rand to its highest level since Oct. 9 as the U.S. Treasury planned to invest about $125 billion in nine of the nation's biggest banks, including Citigroup Inc. and Goldman Sachs Group Inc., according to people briefed on the plan. Equity markets around the world climbed, with Japan's Nikkei 225 Stock Average jumping the most ever.

``Broad-based government intervention in financial markets is allowing for a return of risk appetite,'' said Elisabeth Gruie, an emerging-markets currency strategist in London at BNP Paribas SA, France's biggest bank. ``We expect emerging-market currencies to outperform in the near term.''

The rand rose as much as 2.5 percent to 8.9347 per dollar and was at 8.9765 by 1:55 p.m. in Johannesburg. It advanced versus all but three of 16 major currencies monitored by Bloomberg, adding 1 percent to 12.3189 per euro.

Investors should take up ``long positions in emerging-market currencies'' in the short term, ``particularly the high yielders that have been underperforming, like the rand,'' Gruie said. A long position is a bet the price of an asset will strengthen.

``The risk to this view would be any further deterioration in financial markets, which would reduce the appetite of investors for any form of risk,'' she said.

Equities Rally

Stocks around the world rallied on coordinated efforts by governments to invest in financial institutions and guarantee bank deposits. Europe's Dow Jones Stoxx 600 Index climbed 5.4 percent and futures on the Standard & Poor's 500 Index added 2.9 percent. South Africa's benchmark FTSE/JSE Africa All Share Index gained 4.7 percent.

The rand is ``in the middle of a nervous rally'' and is ``solely dependent on the sustainability of the rebound in equity markets,'' said Ion de Vleeschauwer, chief dealer at Bidvest Bank in Johannesburg, which runs South Africa's largest chain of moneychangers.

``There's a lot of importer demand for dollars below 9 rand to the dollar so the currency is going to find it tricky to hold onto its gains,'' he said. ``We've seen decent exporter selling of foreign exchange earnings between 9.15 and 9.20 per dollar so that provides some resistance to further weakness.''

Financial firms around the world have reported $636 billion in losses and writedowns stemming from U.S. subprime mortgage- related investments since the beginning of last year.

Government bonds gained, with the yield on the benchmark 13.5 percent security due September 2015 dropping 3 basis points to 8.99 percent. The yield on the 13 percent note maturing in August 2010 slipped 5 basis points to 9.19 percent. Yields move inversely to bond prices.

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