South Africa's government bonds reversed losses on Thursday and yields fell as investors drifted back into local debt to snap up bargains following a couple of days of heavy selling when risk aversion hit emerging markets.
Stocks closed up nearly 2 percent after European support for Greece eased concern about a euro zone debt crisis and prompted investors to buy back battered shares such as Lonmin.
Renewed demand for local debt cushioned the rand, which hit a session low of 7.4825 before clawing back ground, also taking its cue from the euro which was boosted by news of central bank measures to ease a funding squeeze for European banks.
The yield on the four-year bond fell as much as 29 basis points to 6.67 percent earlier on Thursday and was last at 6.81 percent, down 15 basis points compared with Wednesday's close.
The yield on the bond due in 2026 was down 12.5 basis points at 8.2 percent.
I'd say bonds are benefit ting from a rotation out of U.S. Treasuries. We are seeing signs of a decent correction there, said Sean Mccalghan, a market analyst at ETM.
Foreigners are getting back to emerging market assets. We've had two days of strong outflows in bonds and foreigners have been selling into weakness but we think that sell-off has played out.
The Top-40 index of blue chips rose 1.97 percent to 27,689.51, its third straight gain and its highest close since Sept 1. The All-share index gained 1.77 percent to 30,998.05.
Shares of asset manager and investment bank Investec rose 1.6 percent after it said it expects flat first-half profit, easing concern that it might post a lower profit, as it did for the full year.
During an overnight conference call between the leaders of Germany, France and Greece, the core euro zone leaders reiterated support for Athens. That helped steady the local market and send investors back to beaten shares, said Abri du Plessis, Chief Investment Officer at Gryphon Asset Management in Cape Town.
It's all about sentiment at this point in time. As soon as sentiment calms down we see the markets bounce, he said.
The large-caps, they were hit the hardest. The commodities, your more cyclical sectors, there's still a lot of scope (for buying).
The rand earlier hit a session trough of 7.4825 against the dollar before recovering to 7.3770 by 1628 GMT, up 0.24 percent from Wednesday's close.
It's all down to the euro really today, that's where the volatility is coming from today,. up to the euro really, RMB trader Jim Bryson said
Traders said the rand was also boosted by an article in Financial Mail in which Reserve Bank Governor Gill Marcus all but ruled out aggressive currency intervention to weaken the rand, saying there were no guarantees such steps would work.
Aggressive foreign reserves accumulation by the Bank earlier this year helped cap strength in the rand, which hit its strongest level this year of 6.5410/dollar in early May.
On the bourse, Johannesburg-listed shares of Lonmin, the world's third-largest platinum miner, surged 4.5 percent to 142.90 rand. As of Wednesday's close, Lonmin was the worst performer on the Top-40 index, having lost a third of its value.
Rival platinum miner Impala Platinum rose 2.7 percent to 169.33 rand. Implats is down 29 percent this year, as of Wednesday's close.
Miners are seen as cyclical stocks, or highly sensitive to the economic cycle. Fears about an economic downturn will often lead to selling of cyclical stocks.
Trade was brisk, with 269 million shares changing hands, according to the latest available data at 1603 GMT.
Advancers outnumbered decliners by a ratio of more than 2 to 1, with 71 shares unchanged.