South Africa's rand climbed to its firmest in more than two months against the dollar on Thursday after strong overnight gains based on expectations that U.S. interest rates will stay low for longer than previously expected.

U.S. Federal Reserve Chairman Ben Bernanke kept interest rates near zero on Wednesday, and said they would probably remain at those levels until 2014.

The dovish stance sent investors flocking to higher-yielding currencies such as the rand, which firmed to 7.8702, its strongest in ten weeks.

The rand was trading at 7.8830 to the dollar at 0830, not far from Wednesday's New York close of 7.8850. Higher gold prices also supported the currency.

'The dovish Fed caused the dollar to weaken 1.2% on a trade-weighted basis and Wall Street and risky assets rallied. This risk-on mood has continued during this morning,' Absa Capital said in a note.

'In light of the improved levels of risk appetite, dollar/rand could be headed for 7.81 in the short-term, and bonds are likely to be well-bid, especially at the longer end of the curve.'

Bonds firmed in line with the rand, with the yield on the 2015 issue down nine basis points to 6.57% and that on the 2026 bond falling 6.5 basis points to 8.31%.

On the data front, producer price inflation data for December will be released today. Economists expecting PPI to hold steady at 10.1 percent year-on-year.

Market reaction to PPI has usually been muted since the basket is dominated by commodities, weakening its link with consumer prices. 

Reported by Reuters Africa