The South African rand gained on Friday after local media reported that a deal had been struck between the African National Congress and the pro-business Democratic Alliance to form a unity government.

At 0946 GMT, the rand traded at 18.3850 against the dollar, around 0.3% stronger than its previous close.

The ANC, which lost its parliamentary majority in a May election, agreed to enter into a government of national unity with parties including the DA, the Inkatha Freedom Party and the Patriotic Alliance, public broadcaster SABC reported.

The ANC's Cyril Ramaphosa is

likely

to be re-elected as the president.

A deal with the DA will be welcomed by investors, Capital Economics economist Jason Tuvey said in a note.

"If confirmed, President Ramaphosa's broad policy agenda, centred around fiscal tightening and addressing infrastructure problems, is likely to remain intact. But the coalition is likely to prove fragile," he said.

On the Johannesburg Stock Exchange, the blue-chip Top-40 JTOPI> index last traded up around 1%. South Africa's benchmark 2030 government bond was down, with the yield up 4 basis point to 10.165%. (Reporting by Tannur Anders Editing by Gareth Jones)