Rand Rises Most in Four Days Versus Dollar on China Growth Plan

By Garth Theunissen

Nov. 10 (Bloomberg) -- South Africa's rand rose by the most in four days against the dollar after China said it will spend $586 billion to prop up its economy, prompting investors to increase purchases of emerging-market currencies on bets the plan will boost the world's economy.

China, the world's fourth-biggest economy and the biggest contributor to global expansion, pledged ``fast and heavy-handed investment'' in housing and infrastructure through 2010 and a ``relatively loose'' monetary policy, it said yesterday. The rand stayed higher even after Fitch Ratings cut its outlook on South Africa's credit rating from stable to negative amid the worst financial crisis since the 1930s.

``The China package is a huge stimulus for the global economy and a major positive for risk appetite,'' said John Cairns, head of foreign-exchange research in Johannesburg at Rand Merchant Bank. ``It's huge in scope and certainly improves prospects for the global economy, which is positive for emerging markets.''

The rand gained for a second day, adding as much as 4.1 percent to 9.7571 per dollar, and was at 9.8686 by 1:35 p.m. in Johannesburg. It rose versus all 16 most-actively traded currencies monitored by Bloomberg, climbing 1.9 percent to 12.7060 per euro.

South Africa's currency will remain ``relatively stable'' and trade between ``9.6 and 10.30 to the dollar'' in the next two days, Cairns predicted.

China Factor

China's extra spending, equivalent to about 80 percent of government expenditure last year, may boost it's economic growth by 2 percentage points in 2009, said Xing Ziqiang, an economist at China International Capital Corp. The nation accounted for 27 percent of global economic growth last year, according to International Monetary Fund estimates.

About 7 percent of South Africa's total exports went to China last year, according to Rand Merchant Bank.

Copper jumped more than 7 percent and oil gained for a second day on optimism the package will limit the effects of a looming global recession. South Africa's benchmark FTSE/JSE Africa All Share Index of stocks rose for the first time in four days, adding 5 percent. The MSCI World Index added 1.7 percent.

Fitch lowered the outlook on South Africa's credit rating amid a review of 17 investment-grade emerging-market economies as the global credit crisis threatens to undermine currencies and erode growth. Fitch affirmed South Africa's BBB+ rating, the third-lowest investment-grade level.

The rand has fallen 31 percent this year as investors sold almost 69 billion ($7.1 billion) more than they bought of the country's assets, partly on concern South Africa would struggle to fund its current-account deficit. The shortfall is expected to reach 7.6 percent of gross domestic product this year, Finance Minister Trevor Manuel said on Oct. 21.

Government bonds advanced, with the yield on the benchmark 13.5 percent security due September 2015 falling 6 basis points to 8.55 percent. The yield on the 13 percent note maturing in August 2010 dropped 5 basis points to 9.04 percent. Yields move inversely to bond prices.

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