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Rand off best on euro uncertainty

Johannesburg – The rand was off the morning’s best levels in midday trade on Monday having given up some of its earlier gains after initially absorbing the Greek poll results positively but‚ with the uncertainty in the region still lingering‚ the focus is now on Spain as a bigger risk for investors.

Media reports said fresh worries over debt problems in Spain and Italy wiped out initial relief from a victory for pro-bailout parties in Greece that had sparked an earlier rally on the markets.

Spanish and Italian government bond yields rose‚ dogged by concerns about Spain's fiscal and banking problems.

Spanish 10-year government bond yields rose 22 basis points on Monday to 7.14%‚ pushing the nation's implied borrowing costs to their highest during the euro's lifetime‚ the reports said.

RMB said that the Greek election result was certainly encouraging: New Democracy won the highest share of the vote and will be able to form a coalition government with fellow main-stream party PASOK. The Bank‚ however‚ warned that focus would now shift to Spain. With the country’s yields hitting 7% last week. “It appears they will need a full bailout‚” RMB said.

At 11:43 the rand was bid at R8.3191 to the dollar from its previous close of R8.2475‚ but still stronger than the R8.3578 that it traded at at about 18:00 on Friday evening.

It was bid at R10.5130 to the euro from its previous close of R10.4887 and at R13.0342 against sterling from R12.9599 before.

The euro was bid at $1.2637‚ from its previous close of $1.2718.

“The markets absorbed the Greek poll news positively‚ but there is still risk in the market. Players are still cautious and will be watching Europe for direction. The Spanish situation is also of concern and on the back of that do believe the rand will remain slightly weaker ahead of other data that is due this week‚” a local trader said.

Meanwhile‚ Dow Jones Newswires reported that the  FTSE 100 was down‚ falling into the red after having opened positively. The euphoria about Greece proved short-lived and most of Europe's equity markets are trading negatively. Lloyds Banking Group‚ which was one of the FTSE 100's biggest gainers early on Monday‚ was now down 3.5%. Royal Bank of Scotland was down 2.8% and Barclays was off 2.3%. This came as little surprise‚ as Spanish 10-year government bond yields hit 7%‚ which was seen as the danger zone for sovereigns. "There has always been an argument that the Greek election didn't really matter in the grand scheme of things" said a trader‚ with Spain a much bigger issue for investors‚ he added.
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