Nov. 25 (Bloomberg) -- South Africa's rand rose to the highest level in almost three weeks against the dollar as stocks rallied after the Federal Reserve pledged up to $800 billion to unfreeze credit markets, fueling demand for higher-yielding currencies.

The rand traded below 10 per dollar for the first time in six days as South Africa's benchmark equity index advanced to a two-week high, tracking gains in European and U.S. markets. The currency rose even as a government report showed third-quarter growth in Africa's biggest economy weakened to the slowest pace in a decade.

``Equities are having a good day, driven by the extension of the Fed plan, which is feeding through into positive investor sentiment,'' said Lucy Bethell, a currency strategist in London at Royal Bank of Scotland Group Plc. ``Currencies across the region are generally stronger, but the rand is moving more than others because it's more volatile.''

The rand gained as much as 3.8 percent to 9.6959 per dollar, the strongest since Nov. 6, and was at 9.8000 by 5:14 p.m. in Johannesburg. Against the euro it appreciated 2.1 percent to 12.7826.

Stocks rallied from Tel Aviv to New York after the U.S. central bank agreed to purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, it said today in Washington.

South Africa's FTSE/JSE Africa All Share Index rallied as much as 6.9 percent, the biggest gain since Oct. 29. Europe's Dow Jones Stoxx 600 Index added 4 percent while the Standard & Poor's 500 Index gained 1.1 percent.

Slowing Growth

The rand stayed higher as data showed economic growth slumped in the third quarter after record inflation and interest rates at a five-year high of 12 percent curbed consumer spending. The $278 billion economy expanded an annualized 0.2 percent, from a revised 5.1 percent in the previous three months, Statistics South Africa said. That was less than the 0.3 percent estimate of 19 economists surveyed by Bloomberg.

``The number was slightly below expectations and is probably going to look even more ugly in the final quarter,'' said Monale Ratsoma, a macro strategist in Johannesburg at Absa Capital Research, which is owned by Barclays Plc. ``High interest rates have taken their toll on consumers.''

The slowdown raises the likelihood the central bank may cut interest rates next month. Policy makers, led by central bank Governor Tito Mboweni, meet on Dec. 11 to decide on borrowing costs.

``With inflation cooling as well, the market is pricing in 150 basis points of rate cuts by the end of February,'' said Matsoma.

Inflation Watch

A report tomorrow may show inflation slowed for a second month, easing to 12.5 percent, according to the median estimate of 20 economists surveyed by Bloomberg. The rate of consumer- price growth dropped to 13 percent in September, the first decline in more than a year, from a record 13.6 percent in August.

Government bonds gained, with the yield on the 13 percent note maturing August 2010 slipping 10 basis points to 8.14 percent. The yield on the benchmark 13.5 percent security due September 2015 fell eight basis points to 8.02 percent. Yields move inversely to prices.

``The inflation outlook has improved significantly, but the trick for the central bank will be whether to cut rates in December or wait until February,'' said Matsoma. ``We think the market is a little too optimistic as the bank may wait until next year before commencing with an easing cycle.''

To contact the reporters on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net

Last Updated: November 25, 2008 10:59 EST