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South Africa's rand rallies to eight-month high on trade surplus, stocks slide

South African bank notes featuring images of former South African President Nelson Mandela (R) are displayed next to the American dollar notes in this photo illustration in Johannesburg August 13 2014. REUTERS/Siphiwe Sibeko (Reuters)

By TJ Strydom JOHANNESBURG (Reuters) - South Africa's rand rallied to its firmest against the dollar in more than eight months after recording a larger-than-expected June trade surplus on Friday. Stocks fell as demand for resource stocks and firms that depend largely on foreign earnings dipped on the stronger rand. The currency breached the 14.0000 mark for the first time this year as data showed the second straight monthly trade surplus, adding to a record in May. The rand gained more than 2 percent to 13.8325 against the dollar, reaching its strongest level since November 4, but pared gains to 1.8 percent at 13.8820 by 1519 GMT. "Recent trends suggest a much lower current account deficit than last year, which could help support the rand and reduce the chances of higher interest rates," said Nedbank's economists in a note. South Africa recorded a trade surplus of 12.53 billion rand ($886 million) in June, higher than the 7.2 billion rand analysts polled by Reuters had expected. "This alongside the improvement in portfolio investment flows in recent months should continue to provide further impetus to the rand which continues to benefit from ultra-accommodative monetary policy stances," said BNP Paribas Securities South Africa economist Jeffrey Schultz. Government bonds were also higher with the yield on the 2026 benchmark dipping ten and a half basis points to 8.64 percent. On the bourse, the benchmark Top-40 index shed 1 percent to 45,916 points and the broader All-share index was 0.9 lower at 52,797. "It was mainly rand strength coming through and it put pressure on resource stocks and other companies who earn outside South Africa," said Avior Capital Markets trader Mark Hodgson. Shares in food services firm Bidcorp, which does most of its sales in Britain and Australia, dropped 4 percent to 259 rand. Insurance group Liberty Holdings was the weakest performer on the bourse, sliding 7 percent to 123 rand, after reporting an 8 percent drop in half-year profit. Trade was below par with around 203 million shares changing hands, compared with last year's daily average of 296 million, according to preliminary bourse data. (Editing by James Macharia)