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S.Africa's rand surrenders brief gains to resurgent dollar, stocks slide

* Rand slides more than 1 pct as EM bulls balk exit

* Stocks dragged lower by risk-off sentiment (Updates with closing figures)

JOHANNESBURG, May 17 (Reuters) - South Africa's rand weakened early on Thursday, giving up the previous session's gains as investors short on the local and other emerging currencies were squeezed out of those positions by a swift, albeit brief turnaround in the Turkish lira.

Stocks weakened, led lower by banking shares, as global appetite for emerging markets dwindled.

At 1705 GMT the rand was 0.88 percent weaker at 12.5550 per dollar, having rallied to 12.40 on Wednesday, spurred by a broad emerging market relief rally after Turkey's central bank said it would act to stem a selloff in the lira.

"With yesterday's rand rally, what we were seeing was a bit of volume flushing the market," said currency strategist at Peregrine Treasury Solutions Bianca Botes.

The relief offered by the Turkish lira stoked a short squeeze as the 12.40/$ level, used as a stop-loss mark by some investors, triggering a brief wave of selling as rand bears wary of a run to 12.20 closed positions.

The rand traded as firm as 12.1800 on Monday, its strongest in three weeks, but quickly lost ground to geopolitical worries over Iran as well as the Israeli-Palestinian conflict, and general risk aversion in anticipation of rate hikes by the U.S. central bank.

"We saw the rand rally all the way down to around 12.20 and, in my opinion, that's a very unrealistic level, considering where the country is from a global and a local perspective," Botes said.

The rand has also been undermined by a large exit from dollar-funded carry trades, with high-yield currencies such as the Mexican peso and the Russian rouble also affected.

Bonds were weaker, with the benchmark paper due in 2026 yielding 8.51 percent, 4.5 basis points higher.

On the bourse, the benchmark Top-40 index closed down 0.83 percent at 51,675 points while the All-Share index fell 0.75 percent to 58,184 points.

Banking shares were down 3.18 percent, with Capitec down 2.61 percent to 826.73 rand and Standard Bank 3.66 percent weaker at 203.02 rand.

"Foreign investors have been a little bit less favourable to South African shares for the last week or so," said Cratos Capital equities trader Greg Davies. (Reporting by Mfuneko Toyana and Tanisha Heiberg; Editing by Toby Chopra)

First Published: 2018-05-17 16:09:17
Updated 2018-05-17 17:44:39

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