The rand rallied to a 3 1/2-month high against the dollar as a rebound in stock markets from Europe to Asia signaled investors’ appetite for risk was improving, boosting sentiment toward higher-yielding assets. South Africa’s currency appreciated as much as 0.8 percent to 7.2834 per dollar, the strongest level since April 14. The rand traded 0.6 percent up at 7.2922 as of 11:11 a.m. in Johannesburg, from a close of 7.3381 yesterday. Chinese stocks surged to a two-month high after the central bank said it will keep a “moderately loose” monetary policy to maintain growth in the world’s fastest growing major economy. European stocks also rose as increased earnings forecasts from companies in the region outweighed a Federal Reserve report showing growth slowed in some areas of the U.S. economy. “The risk trade is back on, which makes a high-yield market like South Africa attractive to investors,” said Vivienne Taberer, a portfolio manager who helps oversee about $70 billion at Investec Asset Management in Cape Town. “South Africa’s attracting huge foreign flows into the bond market and that helps the rand. Rumors of a foreign acquisition of a local bank are also good news for the currency.” Foreign investors have been net buyers of almost 80 billion rand ($11 billion) of South African stocks and bonds this year, according to data from the JSE Ltd., which operates the nation’s exchanges. Such inflows have helped the rand surge almost 29 percent against the dollar since the start of 2009. Nedbank The rand has also strengthened on reports HSBC Holdings Plc and Standard Chartered Plc are in talks to buy Old Mutual’s 52 percent holding in South Africa’s Nedbank Group Ltd., which was reported by Financial Times at the weekend in Mark Kleinman’s “In the Loop” column. That may add to Nippon Telegraph & Telephone Corp.’s $3.2 billion acquisition of Dimension Data Plc, of which half is expected to flow into South Africa when the deal concludes in October. South African bonds fell, reversing earlier gains, after a report showed producer price inflation rose more than expected last month. The benchmark 13.5 percent security due September 2015 fell 5 cents to 124.53 rand, raising the yield by almost 1 basis point to 7.608 percent. Earlier, bond yields dropped to a 2 1/2-year low after a lower-than-expected increase in household borrowing raised speculation the central bank may have room to lower its key interest rate. Inflation slowed for a sixth consecutive month, decelerating to 4.2 percent in June, the statistics office said yesterday. Rate Comparison South Africa’s benchmark rate of 6.5 percent compares with deposit returns of 0.25 percent in the U.S., 0.1 percent in Japan and 1 percent in the Euro region. The rate differential makes the rand an attractive purchase for so-called carry trades, which involve borrowing money in nations with low rates to invest in market offering higher returns. Money-market investors increased bets that South Africa’s central bank will lower its main rate at its next meeting on Sept. 9, forward-rate agreements show. The cost of three-month contracts for cash in three months fell 1 basis point from yesterday’s close to 6.23 percent.

Source