Johannesburg - South Africa's rand hit a one-month high against the dollar on Monday and government bonds rallied on improving global risk sentiment.

The rand built on gains made last week when the European Central Bank announced a bond buying programme that eased fears of a break-up of the single currency.

It rose to a session high of 8.1300 to the dollar on Monday, from a close of 8.1750 in New York on Friday.

Traders said the direction of the rand would depend on events in Europe and the United States this week, including a ruling by Germany's constitutional court on the euro zone's bailout fund and the Federal Reserve's policy meeting.

The rand follows the euro, the currency of its main trading partner, closely.

A green light for the European Stability Mechanism and another round of quantitative easing in the US, or QE3, is expected to provide support for the rand.

“If Mr.Bernanke decides to go the whole hog with QE3 we're going to see a lot of cash continue to flood into emerging markets,” said Warrick Butler, a currency trader at Standard Bank. “If the Fed disappoints and postpones what's likely to be inevitable then we might see a bit of a risk spark again.”

The yield on the 2015 bond fell to a record low of 5.360 percent, while the 2026 paper was 17 basis points lower at 7.285 percent, though traders said liquidity was thin.

“The main thing we're following is US Treasuries,” said Mark Southworth, a bond trader at Citi. “If they sell off so do we. If they rally, so do we. We tend to follow the rallies more aggressively than the selloffs.”

South Africa will sell a total of R2.1-billion in 2023, 2041 and 2048 government bonds in an auction on Tuesday that is expected to be well received. - Reuters