Rand Reverses Advance as Italy’s Debt Woes Crimp Risk Appetite

The rand declined for the first day in three against the dollar as Italian borrowing costs increased at a bond sale, signaling investors aren’t convinced of the new government’s ability to contain the nation’s debt crisis.

South Africa’s currency reversed an earlier gain to trade 0.5 percent weaker at 7.9751 per dollar as of 3 p.m. in Johannesburg. It was little changed at 10.8869 per euro.

Italy’s President Giorgio Napolitano offered the position of premier to former European Union Competition Commissioner Mario Monti yesterday after the resignation of Silvio Berlusconi. Italy sold five-year securities at a yield of 6.29 percent, up from 5.32 percent at the previous auction and the highest since June 1997.

The changes of leadership in Italy and Greece are “far from sufficient to be regarded as a solution to the massive problems that their countries, and the Eurozone, are facing,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in e-mailed comments. “The risks to a significant sell-off in risky assets remain high.”

Monti, an economist and adviser to Goldman Sachs Group Inc., will try to reassure investors that Italy can cut a 1.9 trillion-euro debt load and spur growth that has lagged behind the euro-region average for more than a decade. Greek Prime Minister George Papandreou resigned last week to make way for a coalition led by former European Central Bank Vice President Lucas Papademos.

Earlier, the rand was buoyed after Japan’s economy grew for the first time in a year, boosting the prices of industrial metals including copper.

Bonds declined for a fourth day, with the yield on 6.75 percent securities due 2021 rising four basis points, or 0.04 percentage point, to 7.99 percent.

To contact the reporter on this story: 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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