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Rand Weakens to Seven-Week Low on U.S. Budget, Euro Debt Concern

The rand fell to its lowest level against the dollar in almost seven weeks as concern that an impasse over the U.S. budget cuts and Europe’s debt crisis will derail the global economy damped appetite for riskier assets.

South Africa’s currency retreated as much as 1.6 percent to 8.3268, the weakest since Oct. 4, and traded 1.2 percent down at 8.2995 at 4:36 p.m. in Johannesburg, extending last week’s 3.2 percent decline. Against the euro, the rand weakened 0.8 percent to 11.1783.

The dollar gained against all but one of the 25 emerging- market currencies monitored by Bloomberg as investors sought safety. Emerging-market stocks fell for a fifth day, the longest losing streak since August, and the Standard & Poor’s GSCI index of 24 raw materials slumped to a two-week low. South Africa’s benchmark stock index dropped for a fourth day, led by commodity exporters including Anglo American Plc and BHP Billiton Ltd.

“The rand is being weighed down by the euro-area concerns,” Nomvuyo Guma, a Johannesburg-based currency strategist at Standard Bank Group Ltd., Africa’s biggest rand trader, said in a phone interview. “If you add to that the U.S. situation, it really is a risk-off day.”

Italian bonds fell, sending yields higher, and Spain’s opposition won a parliamentary majority, making the ruling Socialists the fifth European government to be ejected amid the region’s debt crisis. A U.S. congressional committee is likely to announce today it failed to agree on deficit cuts, according to a Democratic aide who wasn’t authorized to discuss internal matters publicly and requested not to be identified.

South African Bonds

South African bonds declined, driving 10-year yields to the highest in a week, ahead of the release of inflation data on Nov. 23 which may show consumer prices rising to near the upper end of the central bank’s 3 percent to 6 percent target range.

The yield on 6.75 percent securities due 2021 rose seven basis points, or 0.07 percentage point, to 8.098 percent, the highest on a closing basis since Oct. 18.

South Africa’s consumer price index rose to 5.9 percent in October, from 5.7 percent the previous month, according to the median estimate of 18 economists in a Bloomberg survey.

“We think the risk to the inflation data is to the upside,” Rand Merchant Bank analysts led by Theuns de Wet said in a research note. “This, combined with the potential for the rand to remain under pressure, should keep bond yields elevated.”

Inflation will likely breach the target this quarter and peak in the first quarter of 2012, central bank Governor Gill Marcus said on Nov. 10.

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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