SOUTH African stocks surged to a record high yesterday, along with global markets buoyed by optimism that European policy makers would finally take action to ease the region's debt crisis.

The broadest benchmark for the JSE, the all share index, gained for a fifth day to close at a new high of 34958,59 points.

Markets have rallied on hopes of further stimulus, Doug Blatch, head of equity trading at Investec Asset Management, said. "There's been a shift of momentum, but nothing fundamental has changed," he added.

The all share closed 0,8% higher yesterday to reach its record high. For the year, the index is 9,3% firmer.

European stocks rose for a fourth successive day, while Spanish bonds, which had come under pressure last week, rallied on expectation of further action by policy makers to safeguard the euro project.

Last week European Central Bank (ECB) president Mario Draghi pledged to do whatever it took within the bank's mandate to protect the currency.

Mr Draghi met US Treasury Secretary Timothy Geithner in Frankfurt yesterday after leaders in Berlin, Paris and Rome backed him by saying they would do what was needed to protect the euro.

For more than two years, the future of the 13-year old currency has been in question because of the region's sovereign debt crisis that has seen bail-out packages offered to countries such as Greece, Portugal and Ireland.

The latest recipient has been Spanish banks, and, until last week, there has been speculation that Spain's government too would have to ask for an assistance package. Europe's sovereign debt crisis has seen most of the peripheral countries in the 17-member common monetary union fall into recession, which has affected emerging market countries such as SA.

Germany, the region's biggest economy, has also begun to reflect the weakness of its neighbours.

Markets were hoping "the central bank will announce bond purchases of Spanish and Italian government bonds again, helping ease the pressure on borrowing costs both countries currently face," Ishaq Siddiqi, market strategist at ETX Capital, said yesterday.

"Declarations of support by European Union leaders also demonstrate the political will of the major nations to work together on bolder measures."

The ECB is holding its policy meeting this week.

US Federal Reserve policy makers start a two-day meeting today to decide whether additional stimulus is needed to combat a slowdown in the world's biggest economy.

Economists are forecasting that US labour department data, to be released on Friday, will show that employers added 100000 jobs in July and that the unemployment rate held at 8,2%.

Other data due may show US manufacturing stagnated this month, and consumer confidence fell for a fifth month.

The rand weakened for the first time in four days yesterday, losing 0,7% against the US dollar to trade at R8,21/$1 in the late afternoon. Shifting domestic interest rate expectations are likely to continue to add volatility to the local currency market, which was still being pulled back and forth between "growth despair and hopes for a vigorous policy response in the world's major markets", Bruce Donald, rand strategist at Standard Bank, said.

The bank's fourth quarter target for the rand is R8,60/$1.

With Bloomberg

derbyr@bdfm.co.za