South African government bonds extended a recent rally on Thursday, gaining sharply on the back of worries about the global economy that saw investors running to safer assets.

With few developments on the domestic front, the rand and stocks took their cue from battered global stocks, with the local bourse hitting 10-month lows.

Local stocks and the rand plunged as European Central Bank President Jean-Claude Trichet signalled the bank was resuming buying government bonds, confirming market fears that the euro zone debt crisis was worsening.

The JSE Top-40 blue-chip index fell 3.35 percent to 26,278.37, a level last seen on October 12, 2010. The broader All-share index gave up 3.01 percent to 29,601.61.

"We haven't seen any piece of good news today from Europe or the United States and all these (developments) add to worries about the global economy," Malcolm Moller, trader at Vunani Capital said.

The rand fell over 2.7 percent on the day and was trading at 6.8940 against the dollar from Wednesday's New York close of 6.7165.

"It's broad-based rand weakness. But I think this huge spike is not going to be sustained tomorrow, guys might be looking to take some profits towards the end of the week," said Sean Mccalghan, market analyst ETM.

The rand hit two-week lows at 6.9075, just a touch off its 200-day moving average at 6.9176, which could prompt further losses if broken decisively.

For now, such a move is unlikely, said Brigid Taylor, dealer at Nedbank.

"We are still advising selling dollars into weakness and still looking for 6.60 on dollar/rand in the medium term," she said, adding market players are likely to sell the dollar once the dust has settled in global markets.

The Reuters Econometer poll showed analysts were less pessimistic on the rand than in June, with the consensus seeing the rand ending the year at 7.01 to the dollar.

Among equity movers, Sappi posted its biggest daily decline since June 2009, falling 6.24 percent to 27.05 rand after reporting a bigger-than-than expected third-quarter loss.

AngloGold Ashanti was down 0.95 percent at 297.84 rand as investors focused on bleak outlook after the gold miner beat consensus with second-quarter earnings.

Other miners also fell as base metal prices slipped with copper hitting a one-month low on demand worries. Anglo American gave up 4.39 to 295.41 and BHP Billiton surrendered 3.37 percent to 228.12 rand.

Cadiz Holdings bucked the negative trend, rising 7.14 percent to 3 rand after France's BNP Paribas said it would pay $22 million for the stockbroking arm of the financial services group.

BONDS COULD RISE FURTHER

Government bonds pierced through key levels to hit new 9-months highs, with further gains seen as an accommodative domestic monetary stance, sound fiscal policy and low debt stock boost their appeal.

The 2015 bond yield hit a session low at 7.01 percent, before coming back to 7.095 by late trade.

"Below seven (percent) ...is not that far away and if we keep seeing this receiving interest from offshore investors in the bond market I'd expect bonds to be under pressure on the downside," said a local bond dealer.

The 2026 yield fell to 8.02 percent before coming back to 8.095 percent, 3.5 basis points down from the previous close.

"All the foreign buying from yesterday has made everyone a little bit short today. There's still some guys that were short and just finally covering their positions now," said another bond dealer.