JOHANNESBURG (Reuters) - The South African rand and government bonds rallied on Thursday, still buoyed by the Finance Minister's budget speech on Wednesday and after tame producer price inflation raised the chances of an interest rate cut next month.
The resource-heavy local bourse ended nearly 1 percent higher, led by miners on stronger commodity prices.
The rand recouped earlier losses to trade firmer against the dollar in afternoon trade, tracking moves on the euro/dollar and after an initial selloff after Wednesday's medium-term budget speech wore off.
By 1519 GMT, the rand had gained 1.27 percent against the greenback to 6.9820, compared to its previous close of 7.0750.
"(The rand is) tracking the dollar at the moment ... we came off the 7.07 to 7.00. I think around the 7.0 figure and 6.95 will be bottom," a local currency trader said.
Yields on government bonds fell sharply as bonds extended their post-budget speech gains.
The 2015 yield was down 12 basis points at 7.105 percent. It fell to 7.07 percent in the session, a level last seen over a week ago. The yield on the longer-dated 2026 note gave up 7 basis points to 8.070 percent, after falling to a three-week low of 7.76 percent.
"The budget was fairly bond positive and I think with the PPI (producer price index) numbers coming in much softer than anticipated the guys have been scrambling for bonds," Richard Farber, a bond dealer at World Wide Capital Securities said.
Farber added that the curve had also steepened in anticipation of interest rate cuts in the short to medium term.
The PPI rose by a much tamer-than-expected 6.8 percent in September, increasing hopes the central bank would cut interest rates either in November or January.
Inflows into the bond market have helped the rand to gain nearly 26 percent since the start of last year.
"For now bonds are better bid with buying from local and offshore accounts," Farber said.
On the bourse, Johannesburg's Top-40 index of blue chips gained 0.87 percent to 26,831.43, while the broader All-share index was up 0.77 percent to 30,186.58.
Technical levels suggest the index has limited upside. Its 14-day relative strength index, or RSI, is around 60, near the overbought mark of 70.
Miners gained, tracking firmer commodity prices as fresh dollar weakness reversed the previous session's decline.
Bourse and mining heavyweight BHP Billiton jumped 2.67 percent to 246 rand and rival Anglo American increased 0.78 percent to 321.50 rand.
The JSE gold mining index was up 1.57 percent as
gold rose above $1, 330 an ounce. AngloGold Ashanti rose 2.17 percent to 322.25 rand and Gold Fields was up 1.27 percent to 106.99 rand.
Massmart shed 0.49 percent to 140.80 rand as
Wal-Mart, the world's biggest retailer, may scale back its $4 billion bid for the South African group by nearly half.
Africa's largest mobile phone operator MTN, however, closed slightly higher, up 0.10 percent at 123.98 rand, despite the group forecasting a near 10 percent rise in subscribers by year end.