south-africa-randJOHANNESBURG: The rand was firmer against the dollar in early Thursday trade, holding on to to gains taken in the previous session and would likely retain is strength if it could manage to stay below resistance.

Investors are encouraged by the finance minister's comments from Wednesday that the government is ready to use foreign reserves to smoothe market volatility as well as Europe's plans to solve the debt crisis.

The rand broke resistance at 7.8060 during Wednesday's session, a level it had previously failed to breach. Analysts see the rand's continued gains tied to its ability to keep below that level.

By 0648 GMT, the rand was trading at 7.8180 to the dollar, 0.25 percent up on its close during New York trade. It was coming back from the day's high so far of 7.79

"The rand is holding onto gains marginally, below 7.85 is quite a key level. We are still beholden onto international developments," said David Gracey, a trader at Investec.

The rand, along with other emerging market currencies hit by the global markets turmoil, has been increasingly volatile.

The market has been bolstered by investor sentiment that Europe is moving toward a fix out of its debt crisis, reducing aversion to riskier emerging markets such as South Africa.

The stock market opened slightly in the red.

If developments abroad continue to support the rand and it manages to close below the 7.80 region, it will likely resume a downtrend towards a previous high of 7.72, technical analysts say.

Government bonds were slightly weaker, with yields adding 2.5 basis points each on the shorter 2015 note to 6.67 percent and 8.36 percent on the 2026 issue.

Investors are worried about oversupply to the longer end of the yield curve, which is where government tends to issue paper.

"The curve continues to steepen, with the 186/157 spread closing a further point higher at 169 (basis points) on concerns of higher long-end issuance from National Treasury in the coming weeks," Rand Merchant Bank said in a note.

Treasury will be issuing 1.1 billion rand of the longest maturity bond, the 2041 next Tuesday.

Copyright Reuters, 2011

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