South Africa's rand retreated against the dollar on Thursday after jumping nearly two percent the previous day, while market anticipation of increased supply weighed on government bonds.
Investors' willingness to take on some risk lifted local stocks as speculation on a possible peace deal in Libya lent some calm to recently jittery markets globally.
The yield on the benchmark 2015 government bond climbed 8.5 basis points to 7.785 percent while that for the longer-dated 2026 issue was up 7.5 basis points to 8.95 percent.
Bonds have sold-off sharply since last week after the Treasury revised the budget deficit forecast for 2011/12 higher to 5.3 percent of GDP, leading to market expectation the government will issue more long-term domestic debt than earlier thought.
The rand relinquished some of its gains against the dollar after breaking through resistance at 6.95 on Wednesday and touching a fresh six-week high of 6.8550 earlier in Thursday's session.
It traded at 6.9150/dollar by 1544 GMT, 0.55 percent off Wednesday's close at 6.8775.
But analysts said the rand should largely hold its own, amid signs the central bank has eased on its accumulation of foreign currency reserves which helped weaken the currency about 10 percent against the greenback at the start of the year.
The South African Reserve Bank (SARB) appears less aggressive on its dollar purchases, which the market has taken as an opportunity to be long the rand, said Roderick Ngotho, CEEMEA forex strategist at RBS in London.
This is the single most important factor, as the recent weakening of the rand was mainly down to the SARB's intervention. The risk now is that the market does not know at what level, or at which period the central bank resumes rand weakening, he added.
The JSE Top-40 index of blue chips gained 1.34 percent to end at 29,211.84, while the broader All-share index rose 1.18 percent to 32,350.12.
It is the peace talk (in Libya) that has given the market a bit of calmness after few days of nervousness, Devin Shutte, a trader at NewsTrading, said. We are also seeing buying in the resources sector, which has managed to push our market higher.
Investors snapped up beaten-down shares after a two-day slide on rising risk aversion in the wake of turmoil in Libya.
Sasol, the world's biggest maker of vehicle fuels from coal, increased 3.58 percent to 389.99 rand as oil prices slipped on talk of a resolution to the Libyan crisis.
Diversified miner African Rainbow Minerals rose 3.45 percent to 218.30 rand and Impala Platinum gained 2.24 percent to 205.50 rand.
Bourse and mining heavyweight Anglo American rose 2.3 percent to 377.99 rand and rival BHP Billiton was up 2.02 percent to 279.40 rand.
Shares in Standard Bank however dropped 0.44 percent to 98.80 rand after the South African banking group posted a 5 percent decline in full-year profit.