The rand led a drop among major currencies against the dollar after European Central Bank President Jean-Claude Trichet said the debt crisis threatens the financial system, sapping demand for riskier assets. South Africa’s retreated 1.4 percent to 7.9540 by 12:02 p.m. in Johannesburg, the most out of more than 30 emerging- market and major currencies monitored by Bloomberg. The crisis has reached a “systemic dimension,” Trichet told European lawmakers in Brussels today, as Slovakia, the only country in the region that hasn’t ratified the retooled bailout fund, prepared to vote on the package. South Africa’s stock index reversed gains and commodity prices slipped for the first day in five. South African bond yields rose. “Those were quite grave opinions from Trichet, and they brought home the realization that the fundamental challenges are not really being addressed,” Ian Cruickshanks, head of treasury strategic research at Johannesburg-based Nedbank Capital, a unit of South Africa’s fourth-biggest bank, said by phone. “Risk appetite is being downgraded, we start losing global investment flows, and the rand has to weaken.” European officials are toiling to meet an end-of-month deadline set by French President Nicolas Sarkozy to get to grips with the crisis, which has propelled Greece to the brink of default, shaken world markets and fueled speculation that the 17-nation currency might not survive in its current form. The rand extended declines on concern China’s decision to buy shares in four banks may be a sign lenders in the world’s second-biggest economy are also facing funding problems, Cruickshanks said. Bonds Drop “Why is China adding capital to its banks? Because they need it,” he said. “It is a symptom of the worldwide funding shortage.” Bonds declined for the first day in six on concern the weaker rand will fuel inflation, leaving the central bank less room to cut interest rates. South African 10-year bond yields added 10 basis points, or 0.1 percentage point, to 8.10 percent at midday in Johannesburg. Forward-rate agreements starting in March, which investors use to lock in borrowing costs, climbed three basis points to 5.28 percent. To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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