South Africa's rand weakens on ECB stimulus cut; stocks up

JOHANNESBURG (Reuters) - South Africa's rand weakened more than 2 percent on Thursday after weak domestic economic data and the European Central Bank's announcement that it was trimming its stimulus program knocked the currency lower. Stocks booked their biggest one-day gain in nearly three months, with Steinhoff International extending a winning run to a second day after the budget retailer reported higher quarterly operating profits the previous day. By 1530 GMT the rand had slipped 1.5 percent to 13.6750 per dollar, recovering slightly from a slide to its weakest in three weeks as short sellers cashed in on the tremor in risk sentiment set off by the ECB's announcement. "When the ECB says they're going to taper our rand and our bonds are always going to get hit," said fixed-income analyst at Rand Merchant Bank Michelle Wohlberg. On Thursday the ECB said it would cut monthly asset purchases to 60 billion euros ($64 billion) from the current 80 billion euros, causing a broad slide in emerging currencies. Sentiment toward the rand was also hurt by weak mining and manufacturing figures. Statistics South Africa said manufacturing output contracted by 2.7 percent year-on-year in October, while mining output fell 2.9 percent. A Reuters poll conducted over the past three days predicts Africa's most industrialised economy will expand 1.1 percent next year from 0.4 percent in 2016. In fixed income, the yield for the benchmark instrument due in 2026 added 6 basis point to 8.895 percent. On the bourse, Steinhoff was among the biggest gainers on the blue-chip index, rising 6.2 percent to 73.59, extending gains since the previous session when it reported higher quarterly operating profit to 15 percent. Based on Steinhoff's most likely growth trajectory, Thomson Reuters StartMine reckons the stock is still about 15 percent undervalued. StarMine's intrinsic valuation model, which uses a blend of analysts estimates and its own models, rates Steinhoff's share price at around 85 rand, based on an expected 8.8 percent five-year annual compounded growth. Overall, traders took their cue from an upbeat tone in major overseas markets. The benchmark JSE Top-40 index rose 2.25 percent to 43,891, the biggest one-day percentage gain since Sept. 22. The broader All-share index gained 2.16 percent to 50,543. Trading volumes were low with about 250 million shares changing hands, below last year's daily average of 296 million shares. ($1 = 0.9416 euros) (Reporting by Mfuneko Toyana and Tiisetso Motsoeneng; Editing by James Macharia)