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LONDON, April 20 (Reuters) - The South African rand rose on Thursday and local bond yields fell to three-week lows, helped by slowing inflation, the government's rejection of nationalisation and the tailwind of a weaker dollar.
The rand firmed 0.7 percent against the dollar to a three-week high and the 2026 benchmark government bond yield fell after consumer inflation eased in March and Finance Minster Malusi Gigaba dismissed calls from one of his own advisers for the nationalisation of banks and mines.
The average yield spread paid by South African sovereign bonds over U.S. Treasuries on the JP Morgan EMBI Global Diversified also narrowed 6 basis points (bps) to 278 bps, a two-week low, outperforming the broader index.
South African assets have weathered a turbulent period, hit by two credit ratings downgrades to junk following the sacking of business-friendly finance minister Pravin Gordhan. Gigaba's comments show an attempt to calm investors.
But S&P Global Ratings warned on Wednesday that South Africa's credit rating could get downgraded deeper into junk territory if ongoing political uncertainty stalls the reforms needed to grow the economy.
"Of the big countries, that's the one that has more risk attached to it politically, even more so than Turkey," said Daniel Moreno, an emerging markets debt fund manager at Rubrics Asset Management.
"In Turkey there is certainty, in South Africa there isn't. They need a very stable government with a very clear policy and they don't have that. As long as we have a country that is driven by internal politics at the ANC, I don't see how it can get any better."
With the dollar slipping 0.3 percent against a basket of currencies, most other emerging currencies also made gains.
The Turkish lira firmed 0.7 percent, having steadied since the April 16 referendum that granted President Tayyip Erdogan sweeping new powers. A Reuters poll indicated, however, that the economy was unlikely to see much of a tailwind this year.
The government says the constitutional changes will make it easier to push through investor-friendly reforms to labour and tax laws, boosting growth. But investors are concerned about Erdogan tightening his grip on monetary policy and the economy.
The Russian rouble also firmed 0.3 percent as oil prices steadied after falling 3.5 percent on Wednesday.
MSCI's benchmark emerging equities index rose 0.3 percent, with Asian markets rebounding after a turbulent few days.
Emerging Europe delivered a more mixed performance, with Turkish and Hungarian stocks up 0.5-0.8 percent, but Russian shares fell 0.7 percent.
Investors have been rattled by uncertainty over the upcoming French presidential election, and tensions with North Korea, with the United States piling on the pressure following the reclusive state's failed missile test on Sunday.
But South Korean stocks closed up 0.5 percent at a near two-week high, Hong Kong shares rose almost 1 percent and Chinese mainland stocks gained 0.5 percent after a four-day losing streak.
China's yuan steadied after the country's foreign exchange regulator said capital outflows had eased sharply in the first quarter.
Banking sources said the central bank had relaxed some of its curbs on cross-border capital outflows, suggesting it feels more confident about the yuan.
The Indonesian rupiah fell 0.2 percent against the dollar to a two-week low, as polls showed foreign-friendly candidate Basuki Tjahaja Purnama had lost his bid for re-election as governor of Jakarta.
Indonesian prosecutors have called for a one-year jail term for Purnama on blasphemy charges.
The Bank of Indonesia is expected to keep its key interest rate unchanged at 4.75 percent on Thursday.
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Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg
Morgan Stanley Emrg Mkt Indx 956.05 +3.13 +0.33 +10.88
Czech Rep 971.21 +3.67 +0.38 +5.38
Poland 2271.35 -3.34 -0.15 +16.60
Hungary 32924.75 +236.66 +0.72 +2.88
Romania 8195.74 -0.37 -0.01 +15.68
Greece 677.87 -1.09 -0.16 +5.32
Russia 1066.65 -1.90 -0.18 -7.44
South Africa 45595.25 -176.71 -0.39 +3.86
Turkey 91337.24 +533.11 +0.59 +16.89
China 3172.59 +1.90 +0.06 +2.22
India 29382.35 +45.78 +0.16 +10.35
Currencies Latest Prev Local Local
close currency currency
% change % change
Czech Rep 26.92 26.88 -0.13 +0.33
Poland 4.26 4.26 -0.09 +3.38
Hungary 312.71 313.11 +0.13 -1.24
Romania 4.54 4.54 -0.01 -0.04
Serbia 123.48 123.52 +0.03 -0.11
Russia 56.34 56.51 +0.30 +8.74
Kazakhstan 312.51 311.53 -0.31 +6.76
Ukraine 26.75 26.74 -0.04 +0.93
South Africa 13.17 13.27 +0.76 +4.26
Kenya 103.27 103.30 +0.03 -0.87
Israel 3.66 3.67 +0.14 +5.15
Turkey 3.65 3.67 +0.67 -3.31
China 6.88 6.89 +0.03 +0.86
India 64.61 64.64 +0.05 +5.16
Brazil 3.15 3.15 +0.08 +3.31
Mexico 18.82 18.85 +0.12 +10.05
Debt Index Strip Spd Chg %Rtn Index
Sov'gn Debt EMBIG 333 -1 .01 7 77.19 1
Additional reporting by Marc Jones; Editing by Mark Trevelyan