Cape Town - The rand fell, extending its worst start to the year since 2011, as an emerging-market sellof continued amid reductions in Federal Reserve stimulus.

Bonds slumped, driving yields to the highest in almost three years.

Developing-nation fund outflows almost tripled in the past week to 0.78 percent of assets under management, Renaissance Capital said in a research note, citing EPFR Global data.

The Fed cut monthly bond purchases to $65 billion this week, adding momentum to a rout also fuelled by slowing Chinese industrial output.

“The rand selling has been mostly about emerging-market fears and contagion so far this year,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in an e- mailed note.

While central banks from Turkey to South Africa have raised interest rates in the face of currency weakness, “it is questionable if this will turn the tide,” he said.

The rand declined as much as 1.2 percent to the weakest level since October 2008. It traded 0.8 percent weaker at 11.2975 by 3:12 p.m. in Johannesburg, bringing its depreciation this month to 7.6 percent, the worst performance out of 16 major currencies and the most in a month since May.

The South African currency pared its loss as the country posted its second successive monthly trade surplus in December.

The yield on benchmark government bonds due December 2026 climbed 11 basis points, or 0.11 percentage point, to 8.95 percent, the highest on a closing basis since April 2011.

The rate has climbed 70 basis points this month as foreign investors dumped a net 21 billion rand ($1.8 billion) of South African debt, including 2.2 billion rand yesterday.

Bond Sales

As well as bond sales, foreigners sold a net 1.67 billion rand of stocks yesterday, bringing outflows from the nation’s capital markets this year to 27.2 billion rand, compared with inflows of 25.4 in 2013, according to JSE Ltd. data.

South Africa needs capital inflows of 19 billion rand a month to finance its current-account shortfall, according to Bloomberg calculations based on South African Reserve Bank data.

The deficit, which swelled to 6.8 percent of gross domestic product in the third quarter, may be contracting as the trade balance improves, Nedbank Group Ltd. economists led by Dennis Dykes said in an e-mailed note.

The nation’s trade surplus widened to 2.8 billion rand in December, from 700 million rand the month before.

That brings the full-year shortfall for 2013 to 69.9 billion rand, compared with 34.6 billion in 2012.

Interest Rates

“Some improvement in the trade balance is expected in 2014 due to the weaker rand, some recovery in traditional trading partners and slow domestic demand,” Dykes said.

“The figures are unlikely to have much impact on either the rand or policy in the short term.”

South African Reserve Bank Governor Gill Marcus unexpectedly raised the benchmark rate two days ago by 50 basis points to 5.5 percent to combat inflation that she said will average above policy makers’ 6 percent upper threshold in 2014.

The rand’s three-month implied volatility against the dollar climbed two basis points to 16.82 percent today, indicating options traders are seeing wider price swings in coming months. - Bloomberg News