October 25, 2018 / 8:44 AM / 24 days ago

UPDATE 2-South Africa's rand eases further on budget worries, stocks bounce

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JOHANNESBURG, Oct 25 (Reuters) - The South African rand weakened further on Thursday, as investors were rattled by bleak medium-term budget forecasts a day earlier and a stronger dollar, which dampened appetite for emerging markets globally.

At 1500 GMT, the rand traded at 14.5800 versus the dollar, 0.19 percent weaker on the day after falling by around 2 percent on Wednesday.

Finance Minister Tito Mboweni predicted wider budget deficits and cut growth forecasts in his medium-term budget on Wednesday, laying bare the challenges he faces at a time of revenue shortfalls and ballooning debt.

On Thursday, Mboweni called for urgent action to prevent high debt levels forcing South Africa to seek help from the International Monetary Fund.

“The risks in the budget were realised and the rand felt that significantly. Mboweni provided a realistic view,” said Afrifocus Securities portfolio manager Cheslyn Francis.

The medium-term budget partly unsettled investors because of fears that ratings agency Moody’s could strip the country of its last investment grade credit rating.

“Moody’s may be reluctant to downgrade but it’s on the radar if issues aren’t sorted out. It’s not going to be a comfortable ride for the rand,” said Francis.

Treasury One analyst Wichard Cilliers said the rand was also dragged lower by a rally in the dollar, which saw the U.S. unit hit a two-month high against a basket of currencies.

In fixed income, the yield on the benchmark government bond due in 2026 rose 7 basis points to 9.370 percent.

Stocks rose, helped by technical factors after a recent sell-off pushed the main indices into oversold territory, according to momentum indicators tracked by analysts.

The benchmark Top-40 index climbed 1.67 percent to 45,416.62 while the wider All-share index added 1.47 percent to 51,624.86. (Reporting by Nomvelo Chalumbira and Ed Stoddard Editing by Joe Brock)

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