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Johannesburg - Stock markets were mostly higher on Thursday after two days of selling, but investors were treading cautiously after Spain became the third European country this week hit with a downgrade of its debt.
The euro steadied on Thursday, rebounding from a one-year low against the dollar the previous day.
At 10:30 the rand was bid at 7.42 to the dollar from 7.4091 at its previous close. It was bid at 9.80 to the euro from its previous close of 9.8043 and was at 11.26 against the sterling from 11.2733.
"For now the euro remains the litmus for the rand while we are also keeping an eye on typical risk indicators such as global equities. The lead here is that while the Spanish downgrade caused a flurry, euro/dollar dipping to a new low of 1.3116, global markets are much where they were on Wednesday," RMB analysts noted in their morning report.
"The mood surrounding the euro remains sour," said Satoshi Okagawa, head of forex and money trading group at Sumitomo Mitsui Bank in Singapore.
The euro was trading around $1.3210 on Thursday as investors waited to see if a fractious European Union, the IMF and Greece can agree on details of the bailout package in time for Athens to avoid a potential debt default.
European markets traded mostly higher early in the session: Britain's FTSE 100 was up 0.2%, Germany's DAX added 0.1% and France's CAC-40 was flat. With U.S. market futures green, Wall Street was poised to advance on Thursday.
By 10:30, the JSE all share index declined 0.28%, while most other indices were flat.
A local equities trader said gold stocks were fairly resilient as investors look towards safe- haven buying. "(But the rest of the market) has seen some profit taking, amid the uncertainty until we get some clarity on Greece."
The European debt crisis spread on Wednesday when Standard & Poor's lowered its credit rating for Spain amid concerns about the country's growth prospects following the collapse of a construction bubble.
The downgrade, coming just a day after Standard & Poor’s slashed its credit ratings on Greece and Portugal, escalated fears of a contagion that could raise borrowing costs for European countries, chill the credit markets and derail an economic recovery.
However, sentiment was helped by an overnight gain on Wall Street, where stocks finished higher after the Federal Reserve offered modest reassurances about the world's largest economy.
The central bank, at the end of a two-day policy meeting, said the labour market is "beginning to improve" and it noted that housing starts have edged up. It expects to keep rates low for an "extended period" to help strengthen the economy.
But analysts said the respite in most markets was unlikely to last because of so much uncertainty surrounding Greece and other European nations struggling with high debt loads and deficits,
"Fiscal issues in the eurozone's periphery will come back to haunt investors, and we have likely not seen the worst of it yet," Dariusz Kowalczyk, chief investment strategist for SJS Markets in Hong Kong, said in a note.
South African bonds were little changed from their overnight levels in early trade on Thursday.
By 08:30 the short-term government R154 bond was bid at 6.625% and offered at 6.640% after closing at 6.605% on Wednesday, and the medium-term R157 was at 7.840%, unchanged from its previous close. The long-term R186 was bid at 8.815% and offered at 8.785% from 8.790% previously.
Gold was quoted at $1 165 an ounce after bouncing overnight on the back of the Fed report.
Crude oil prices also steadied on hopes that US demand will improve this summer, with US light crude futures easing but holding above $83 a barrel.
- AP and I-Net Bridge
