S.Africa's rand at near 5-month high; bonds strong

JOHANNESBURG (Reuters) - South Africa's rand steadied against the dollar on Thursday after hitting near five-month highs earlier, with dealers seeing it maintaining its firmer tone.

Investors were encouraged to buy risky assets on Wednesday after strong manufacturing data from China, Europe and the United States, which suggested an improvement in global growth prospects.

Government bonds mirrored the rand's strength, with yields coming down across the curve on the favourable inflation outlook associated with a strong currency.

The rand was trading at 7.67 against the dollar, a touch softer than Wednesday's New York close of 7.6555, which was its firmest since mid-September.

"The rand's strengthening streak is likely to continue today. Therefore, we expect extended selling interest," Standard Bank said in a note.

The rand has recovered from 2-1/2 year lows hit in November but even with this week's gains, there could still be some vulnerability.

"We could get below 7.60. We have seen portfolio flows and they have pushed the rand," said Judy Padayachee, technical analyst at Absa Capital, adding dollar weakness was also at play.

"A lot of indicators on technical charts are showing the market has overstretched the rand move ... there's some vulnerability."

There was little on the domestic market to impact the rand although a report that a ruling ANC study has rejected mine nationalisation was positive for investor sentiment.