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Rand Gains to 1 1/2-Week High as ECB Delays Liquidity Withdrawal

Dec. 2 (Bloomberg) -- The rand gained to a 1 1/2-week high against the dollar after the European Central Bank said it will maintain emergency liquidity for banks and continue buying government bonds to prevent its debt crisis from spreading.

South Africa’s currency appreciated as much as 0.8 percent to 6.9538 per dollar, the strongest since Nov. 22, and traded at 6.9539 by 5:10 p.m. in Johannesburg, from a previous close of 7.0071. Against the euro, the rand added 0.1 percent to 9.1889 for a fourth day of gains.

The Frankfurt-based ECB will offer banks unlimited loans through the first quarter over periods of seven days, one month and three months, President Jean-Claude Trichet said in Germany’s financial hub today. The decision marks a shift from his stance last month, when he said ECB could start limiting access to its funds in the first quarter.

“It should be a positive for the rand,” Leon Myburgh, a fixed-income and currency strategist for sub-Saharan Africa at Citigroup Inc., said by telephone from Johannesburg. “Any measures to address the euro zone’s problems would be good for risk appetite, which should benefit South Africa as we still offer one of the highest yields around.”

The South African central bank’s 5.5 percent benchmark rate compares with 0.25 percent in the U.S. and 0.1 percent in Japan.

The ECB met today under pressure from investors to stop the debt crisis from engulfing Spain, the euro area’s fourth-largest economy, after an Irish bailout four days ago failed to persuade markets that policy makers can resolve the problem. The rand slid to a 2 1/2-month low of 7.1789 on Nov. 29 on concern Ireland’s 85 billion-euro ($112 billion) rescue would fail to prevent Europe’s debt crisis from spreading.

Government bonds fell in South Africa for the first time in three days, with the benchmark 13.5 percent security due September 2015 losing 16 cents to 124.16 rand. The yield on the bond climbed 3 basis points, or 0.03 percentage point, to 7.40 percent.

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

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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