South Africa's rand fell against the dollar on Monday as a set of weak international manufacturing data reawakened worries about the global economy, prompting investors to go for traditional safe-haven trades.
Government bonds extended gains from last week, taking yields on the short end to multi-month lows, after a deal to raise the United States' debt ceiling fuelled demand for fixed income securities.
Local stocks indices barely broke a five-day losing streak, with miner Exxaro among the top gainers on blue-chip index after coal mine workers called off a crippling pay strike.
Government bonds have enjoyed strong demand from offshore, which amounted to 2 billion rand last week.
National Treasury Director- General said should the debt situation in the developed world worsen, especially in Europe, borrowing costs for government could rise.
For now, an accommodative monetary policy stance looked set to remain for this year and support bonds after PMI data that showed the key manufacturing sector contracted in July.
The yield on the 2015 bond fell 10 basis points to 7.24 percent, after hitting 7.23 earlier, its lowest since early January. The 2026 yield was down 11 basis points to 8.395 percent, bouncing from a near two-month low of 8.37 earlier.
"The little bit of certainty about the U.S debt crisis has caused the demand for bonds again," said Marten Banninga, bond trader at World Wide Capital Securities.
"A U.S downgrade would be negative for bonds because everybody would talks about: who follows next it would really negative," he said, adding the rand would also determine the outlook for bonds.
The rand was trading at 6.7425 to the dollar at 1600 GMT, 0.7 percent weaker than Friday's New York close of 6.6950.
"Markets have reacted negatively to that (U.S. manufacturing) number after the exuberance in earlier on the debt deal," said a local dealer.
"Equities have given back gains and we are back in the risk -off scenario with dollar demand across the board. The rand is probably going to trade weaker still and this could be problematic for rand bulls," he added.
Data that showed the U.S. economy was still fragile came after PMI's from across the world pointed to a similar worrying picture. The Institute for Supply Management's report on the manufacturing sector showed the main index dropping to its lowest since July 2009.
Importers came in the market after the rand hit a session low of 6.6493, threatening to break through a two-month low of 6.6250 hit last week.
The break of 6.80, its 50-day moving average, could be the signal of further losses for the rand.
On the bourse, the JSE Top-40 blue-chip index was 0.17 percent higher at 27,905.27 and the broader All-share index gained 0.16 percent to 31,257.31.
"We had solid start because everyone was positive about the U.S. debt deal but were gave up most of the gains later in the session after manufacturing data came out in the U.S.," said Rigardt Maartens, a portfolio manager at PSG Online Securities.
Miner Exxaro was among the gainers on the blue chip index after workers ended a strike in the coal mining sector. Exxaro stock closed 3.34 percent higher at 186.01 rand.
A deal in the coal sector was clinched as talks to end an industrial action hitting companies such as Harmony and Gold Fields were set to begin.
Shares in both companies gained between 1.6 and 2 percent as the price of bullion cut loses after disappointing manufacturing data in the U.S.
Elsewhere, Nedbank added 1.42 percent to 142.50 rand after the bank said first-half profit increased 26 percent. (Editing by xxx)