April 4, 2017 / 6:17 AM / 5 months ago

UPDATE 2-South Africa's rand firms but risks remain; stocks also up

* Rand firms on hopes Zuma may be forced from office

* Stocks up led by bullion shares (Adds analyst comments, adds levels)

JOHANNESBURG, April 4 (Reuters) - South Africa's rand and government bonds recovered on Tuesday after a sharp sell-off following S&P Global Ratings' decision to cut the country's credit rating to sub-investment grade, while stocks rose led by bullion shares.

The rand was 1.06 percent stronger at 13.5250 per dollar compared with its Monday close after falling earlier in the session to a near 3-months low of 13.9400.

In fixed income, the yield for the benchmark government bond due in 2026 fell 6.5 basis points to 8.915 percent.

Traders said the currency was firmer over mounting calls for President Jacob Zuma to step down from unions, religious leaders, civil society and the opposition after he reshuffled his cabinet last week and dismissed the finance minister.

"There is a hope in markets ... that we may find we have a new president, a new structure and all those type of things," Investment Solutions chief economist Lesiba Mothatha said.

South Africa's biggest trade union called on Zuma to quit after his cabinet changes led to the downgrade.

S&P Global Ratings cut the credit rating to BB+ from BBB- and assigned a negative outlook, citing fiscal policy risk after Pravin Gordhan's sacking as finance minister.

On the bourse, the benchmark Top-40 index rose 0.41 percent to 45,747 points while the All-Share index lifted 0.39 percent to 52,661 points.

Bullion shares rose 3.98 percent after a weaker dollar boosted gold prices to one-moth highs while safe haven buying further supported the commodity.

"Its a combination of a weaker dollar and a flight into safe havens because of the risk off environment in markets abroad," said Northshore fund manager Mark Loubser.

AngloGold Ashanti was the top gainer among gold stocks, scaling 4.34 percent to 155.69 rand.

Further gains were curbed by banking stocks, which fell on news of the downgrade. The banking index slumped to more than 5-month lows earlier in the day before reversing some of its losses to close down 0.1 percent. (Reporting by Olwethu Boso and Tanisha Heiberg; Editing by James Macharia)

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