The shares of 25 companies gained, six declined and 24 were unchanged.

National Bank of Kenya Limited., a state-run lender, advanced for the fifth straight day, rising to as much as 40 shillings, or 4.6 per cent.

"They have a 20 billion-shilling bond in which they are getting interest and are not subject to taxes. They are assured of that interest whether the economy is performing badly, whether the bad loans increase," Fred Mweni, managing director of Nairobi-based Tsavo Securities Limited said in a phone interview.

The government issued bonds to National Bank to clear bad debts owed to it by state-run companies. The bonds will be tradable from next year. In July 2008, the presidency announced plans to sell 25 per cent of its shareholding in the lender to an equity partner and a further 17 per cent through a share sale on the Nairobi Stock Exchange.

The 22 per cent held by the National Social Security Fund, the state-run pension fund, will also be sold through the exchange, the presidency said.

TPS Eastern Africa Limited, the Kenyan holding company of Serena Hotels chain in the region, paced the gaining stocks as its share price jumped 10.5 per cent to 42.25 shillings.

"There is demand but there is no supply," Mweni said. "The peak tourism season has just started and signals good things."

In a related development, South Africa's rand advanced for a second day after a report showed the nation's current-account deficit more than halved in the second quarter.

The rand gained as much as 1.1 per cent to 7.7185 per dollar and traded 0.7 per cent stronger at 7.7446 by 4:33 p.m. in Johannesburg, from a close of 7.8025 yesterday. Against the euro the rand appreciated 1.1 per cent to 11.0403.

The deficit on the current account, a measure of trade in goods and services, shrank to 3.2 per cent of gross domestic product in the three months to end-June, the lowest since March 2004, and down from seven per cent in the first quarter, the Reserve Bank said in its Quarterly Bulletin released in Pretoria yesterday.

Economists had expected a shortfall of 4.4 per cent of GDP, according to the median of 18 estimates in a Bloomberg survey.

"It's a much lower number than the market was expecting and is likely to be rand supportive," said Ian Cruickshanks, head of research at Nedbank Treasury in Johannesburg. "Imports have been slashed because consumer demand has plunged in response to the recession."

South Africa's first recession in 17 years has forced consumers to cut back on spending and has curbed investment in imported machinery, vehicles and electrical equipment. The reduction in the current-account deficit makes South Africa less reliant on foreign purchases of its stocks and bonds to fund the shortfall and prevent the rand from weakening.

Foreign investors have been net buyers of more than 75 billion rand ($9.7 billion) of South African assets this year, according to data from the JSE Ltd., which runs the nation's stock and bond exchanges. The capital inflows have helped the rand rally more than 21 per cent against the dollar this year, making it the second-best performing major currency monitored by Bloomberg.

The rand is "slightly overvalued" and needs to weaken to about 8.30 per dollar to enable South Africa to boost exports and benefit from a global economic recovery, according to Elisabeth Gruie, a London-based emerging-markets currency strategist at BNP Paribas SA, France's biggest bank.

"At this stage of the cycle the rand is too strong," she said. "We need stronger signs of a material improvement in the economy before we can justify the currency's current levels."

Government bonds advanced, with the yield on South Africa's benchmark 13.5 percent security due September 2015 dropping 11 basis points to 8.14 per cent. The bond's price, which moves inversely to the yield, gained 56 cents to 125.12 rand.

"The massive improvement in the current account is very good news for the currency outlook and the bond market is responding positively," said Victor Mphaphuli, a portfolio manager who helps oversee about $45 billion at Stanlib Asset Management in Johannesburg.

"A stronger rand implies lower inflation because it reduces the cost of imported oil."

South African inflation has slowed for five consecutive months, easing to a yearly 6.7 per cent in July. Inflation erodes the returns of bonds, which guarantee a fixed payment.

The Guardian Newspaper, Friday September 4, 2009.