Johannesburg - South Africa's rand steadied against the dollar on Monday, holding its own after market bears failed in recent sessions to push it through the psychologically key 8.5 level despite a weak global economic outlook and prospects of lower commodity demand from China.

Sentiment towards South African assets was also on a better footing after the government dropped controversial charges against striking miners at Lonmin in the wake of violence which left more than 40 people dead last month, raising the spectre of political turmoil.

The rand was at 8.3980 against the dollar by 16h15 GMT, up 0.07 percent from Friday's close.

The currency was also buoyed by the latest purchasing managers' index which pointed to South Africa's manufacturing sector showing more resilience than global peers by staying in expansionary territory despite slowing in August, said Murat Toprak, EMEA strategist at HSBC.

“Also in the past few days you had expectations that dollar/ rand would move even higher towards 8.50/60 on the Chinese story and the global slowdown but that hasn't happened,” Toprak added.

“It's not easy to hold a long dollar/rand position for a long time and those investors have probably reduced their bets on a (weaker) rand.”

Government bonds ended the day firmer and inversely the yield for the heavily traded three year paper fell 6.5 basis points to 5.425 percent while that for the 14-year paper shed 7 basis points to 7.36 percent.

“I reckon it's mostly to do with the Fed's comments on Friday which have brought on risk-on trade,” a Johannesburg bond dealer said.

He was referring to comments by US Federal Reserve Chairman Ben Bernanke which reinforced expectations for further easing to revive growth in the world's largest economy.

Expectations that interest rates in developed economies will stay near zero levels for a long period have supported higher-yielding emerging market assets, although this is usually off-set by spikes in risk aversion. - Reuters