South African rand recovers footing, market eyes on Turkey

JOHANNESBURG, Jan 28 (Reuters) - South Africa's rand regained some of its footing against the dollar on Tuesday, largely tracking a similar recovery in emerging market peer the Turkish lira, whose slide to multi-year lows it had mirrored the previous day.

South Africa and Turkey are both in the "fragile five" group of emerging economies whose weak economic fundamentals, including large balance of payments deficits, make them particularly vulnerable during bouts of global risk aversion.

A strike by up to 100,000 workers at the world's top three platinum producers has also dented investor appetite for South African assets.

By 0651 GMT the rand ZAR=D3 , which hit a new five year low of 11.2550 against the dollar on Monday, was trading 0.26 percent firmer at 11.0910 compared with its New York close.

This was in line with the lira TRYTOM=D3 which also edged up ahead of an emergency meeting of the country's central bank expected to yield an interest rate hike.

"The Turkish currency, which we were following, has (recovered) dramatically on the back of that and therefore the rand has consolidated as well," said Rand Merchant Bank trader Jim Bryson.

On the local front, the market is also eyeing the South African Reserve Bank's own policy meeting, expected to end on Wednesday with a decision to keep rates at four decade-lows as it balances risks to inflation with a need to prop up the ailing economy.

Real interest rates in Africa's biggest economy are currently in negative territory, and this could undermine the rand's yield appeal in the long run.

"We're a bit isolated (from other emerging markets) in that we're not raising rates. It will eventually be negative for the rand, though maybe not in the short term, because we don't want to be the only ones with negative real rates," Bryson said.

Government bonds were still weaker after Monday's heavy sell-off, with the yield for the 2026 paper ZAR186= , the secondary benchmark, climbing 5 basis points to 8.725 percent.

The yield for the shorter-dated 2015 bond was up 4 basis points to 6.615 percent.

(Reporting by Stella Mapenzauswa; editing by David Dolan)

((stella.mapenzauswa@thomsonreuters.com)(+27117753161)(Reuters Messaging: stella.mapenzauswa.thomsonreuters.com@reuters.net))

Keywords: MARKETS SAFRICA/RAND