JOHANNESBURG: South Africa's rand rallied on Thursday after a rise in U.S. inflation was seen by investors as soft enough to keep monetary policy loose there, boosting demand for risk assets.

At 1500 GMT the rand was 0.75pc firmer at 13.6250 per dollar, having earlier reached a session-best 13.5825, to snap a three-day losing streak prompted by concerns that faster rising consumer prices in the United States would lead to higher lending rates.

The high-yielding rand, which hit its strongest level in 28 months on Friday, is the top performing major emerging market currency this year, spurred by a boom in global commodity prices and the low-rate environment in developed markets.

"While the hot inflation data may not be enough to force the Fed to make any policy moves anytime soon, it may prompt the central bank to think twice about their 'transitory' mantra while fuelling speculation over official taper discussions," said Lukman Otunuga, analyst at FXTM.

On the day, a widening of the current surplus to 5pc of gross domestic product (GDP) in the first quarter supported demand. But the rand's rally was dented by signs of a slower economic recovery as manufacturing and mining output hit a speed bump.

"We think the shine from figures released today will fade in the coming months as headwinds facing the economy mount," said Virág Fórizs, Africa analyst at Capital Economics.

"Industrial metals prices are likely to drop back. Renewed power cuts will weigh on activity and fiscal austerity will hold back domestic demand."

Bonds continued to rally, with the yield on the benchmark 2030 government issue down 6.5 basis points to 8.65pc.

Shares on the Johannesburg Stock Exchange (JSE) slipped a tad from the previous day's closing but largely brushed off concerns of higher inflation in the United States.

"There is no conclusive evidence on the transitory nature of inflation and one has to see that against the positive employment numbers came last week (in U.S.)," said Thato Mashigo, portfolio manager at Sanlam Private Wealth.

He said while inflation numbers are negative, the market is still taking a positive view that the U.S. economy will grow and that is what is keeping the momentum alive in the local market.

Apart from banks, other financials and retail, most of the South African stock market's performance is largely linked to the performance of global markets.

The benchmark all-share index closed down 0.2pc at 67,543 points and the blue-chip index of top 40 companies ended down 0.23pc at 61,291 points.