Economists expect Finance Minister Pravin Gordhan to target a budget deficit of 5.4 percent of GDP for the 2012/13 fiscal year when he unveils his annual budget on Wednesday. That would be down from an estimated 5.3 percent of GDP in 2011/12 but higher than a forecast of 4.8 percent of GDP for 2012/13 made in last year's budget as the government ramps up spending on infrastructure and social services.

At 1629 GMT the rand was 1.07 percent firmer at 7.66 against the dollar, making it the second-best performer among a basket of 20 emerging market currencies after the Hungarian forint on the day, as expectations euro zone finance ministers would approve a debt bailout for Greece boosted global risk appetite.

Trading volumes were thin, with US markets closed for a public holiday.

"It's a very quiet afternoon due to the US holiday and because markets are waiting to see if the Greek bailout will be agreed," Informa Global Markets analyst Christopher Shiells said.

"Hopes are high that a deal has been thrashed out and this is what has been driving broader market sentiment and the rand higher today," he said.

On the debt market, the yield on South Africa's benchmark three-year bond dipped one basis point to close at 6.59 percent while the yield on 14-year paper fell 1.5 basis points to 8.215 percent.

"The market has adopted a wait-and-see stance pre-budget, but if he (Gordhan) signals increased borrowing, bonds could come under a bit of pressure. Offshore demand still remains fairly strong though," a Johannesburg bond trader said.

Foreigners bought a net 1.5 billion rand ($195.80 million)worth of South African debt last week, data from the JSE securities exchange showed.