Rand Weakens for a Second Day on Europe Debt Crisis Concern, Franc Bets

The rand weakened for a second day as Italian Prime Minister Silvio Berlusconi faces a budget vote amid pressure to resign, fueling concern the euro-region debt crisis is set to worsen.

South Africa’s currency weakened 0.2 percent to 7.9221 per dollar at 4:35 p.m. in Johannesburg, extending last week’s 2.3 percent drop. Against the euro, the rand slid 0.1 percent to 10.907.

The dollar rose against most of its major peers, gold climbed to a six-week high and emerging-market stocks fell as Europe’s debt crisis spurred demand for havens. Italy’s parliament will vote tomorrow on the 2010 budget report as Berlusconi’s majority unravels and the nation’s borrowing costs jumped.

“We see no reason to turn more bullish on global emerging markets, especially on the currency front,” Benoit Anne, the London-based head of emerging-markets strategy at Societe Generale SA, and colleagues wrote in e-mailed comments. “Emerging-market high-beta currencies will be vulnerable to contagion risks.”

South Korea’s won, the rand and Russia’s ruble were particularly vulnerable to “short-term depreciation risks” Anne said.

The rand extended declines on speculation the Swiss National Bank will act to further limit the strength of its currency, spurring investors to buy dollars, Ian Cruickshanks, head of treasury research at Johannesburg-based Nedbank Capital, a unit of South Africa’s fourth-biggest bank, said by phone.

“They made an assurance that they would and are lurking in the background ready to do so,” Cruickshanks said. “If they see it getting close to the supposed danger level, they’ll be back.”

Ready to Act

SNB President Philipp Hildebrand said the central bank remained ready to act in case the franc’s strength increases the risk of deflation and threatens the country’s economy, according to an interview published yesterday in NZZ am Sonntag newspaper. The Swiss currency slid 1.4 percent against the dollar today.

South Africa’s 6.75 percent bonds due 2021 declined for a second day, driving the yield up two basis points, or 0.02 percentage point, to 7.88 percent.

To contact the reporter on this story: Stephen Gunnion in Johannesburg at sgunnion@bloomberg.net 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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