South Africa's rand gained as much as 2.3 percent against the dollar on Monday in what traders said was a temporary correction after last week's battering to 30-month lows.
Government bonds also rallied, and benchmark yields fell as much as 10 basis points although investors are likely to trade cautiously ahead of credit, money supply and gross domestic product data this week which should give pointers on the direction of monetary policy in the short term.
South African assets have been hammered alongside emerging market peers by risk aversion linked to euro zone debt problems, but Finance Minister Pravin Gordhan said in a statement released on Monday continued exchange control liberalisation would encourage greater two-way demand for the rand, mitigating its volatility.
The currency surged to a session high of 8.30 against the dollar on Monday, its strongest level in nearly a week and making it one of the top five preformers among 20 emerging market currencies monitored by Reuters.
The rand gave up some of those gains to 8.38 by 1552 GMT, but it was still up 1.65 percent form Friday's New York close.
Last week's low of 8.61 was the weakest the rand has been since mid-May 2009, after investors offloaded risky assets on worries euro zone leaders were failing to get a handle on the region's debt woes.
It's probably just a bit of a relief rally ... I have my doubts seriously that this is now the turnaround we've been looking for and everything is hunky dory, because in all probability it's not, Bidvest Bank chief dealer Ion de Vleeschauwer said.
The rand would need to close above 8.30/dollar for a sustained push higher, he said, adding:
If it manages that it might go down to about 8.25, but around there I expect a lot of importer demand to stop it from really going much further.
The rand's gains sparked a rally on the bond market, where the yield on the heavily traded four year closed 10 basis points lower at 6.99 percent and the yield on the 2026 paper was down 4.4 basis points at 8.63 percent.
A lot of investors were buying on the short end of the curve but I think the moves are going to be contained given the amount of domestic data this week specifically related to bonds markets, ETM analyst Luke Barnett said.
The bond rally hasn't been as good as the recovery in the rand and I think a lot of investors are taking a wait and see approach ahead of the data.