* Rand weakest since Oct. 10 after torrid week
* Benchmark bond yield rises to 3-month high
* Stocks flat, led by rand hedge shares (Updates to reflect steeper rand falls, adds comments)
JOHANNESBURG, Oct 20 (Reuters) - South Africa’s rand weakened sharply on Friday and government bonds sold off, as speculation that President Jacob Zuma may axe his deputy Cyril Ramaphosa added to a climate of political uncertainty that has unnerved investors.
Stocks were mostly little changed on Friday, with rand hedge shares rising on the back of a weaker currency.
At 1527 GMT the rand was 1.3 percent weaker at 13.6900 per dollar, earlier hitting its weakest since Oct. 10 after losses of over 3 percent against the dollar this week.
On Friday it underperformed other developing market currencies, which fell as expectations for fiscal stimulus in the United States boosted the greenback.
“Other emerging markets are weaker but not as much as the rand. That’s because of lingering political uncertainty, especially these rumours about Zuma axing Ramaphosa,” said Wichard Cilliers, a currency dealer at TreasuryOne.
The yield on South Africa’s benchmark government bond due in 2026 rose 4 basis points to 8.835 percent, its highest level since mid-July, reflecting weaker bond prices.
Zuma’s spokesman told Reuters there was no basis for reports that the president would axe Ramaphosa, but market participants dumped local assets nonetheless.
Answering questions in parliament on Thursday about whether he may be sacked, Ramaphosa said he could not speculate on rumours.
The ruling African National Congress (ANC) party, of which Zuma is leader and Ramaphosa deputy, has been riven by bitter infighting ahead of a party conference in December at which a new leader will be chosen.
Analysts at German bank Commerzbank advised clients to trade rand assets cautiously in light of the political turbulence and said they expected the local currency to remain under pressure.
Zuma spooked investors earlier this week by appointing a close associate to oversee a big nuclear power deal in his second cabinet reshuffle in seven months.
The benchmark Top-40 index lifted 0.15 percent to 51,601 points, while the All-Share index ticked up 0.09 percent to 57,949 points.
Rand-hedged stocks, which make the bulk of their revenue outside South Africa and tend to strengthen as the currency weakens, were the biggest gainers with bourse heavy-weight Naspers rising 1.29 percent to 3297 rand.
“For the most part it’s all offshore companies who earn their turnover or profit offshore, that’s where the gains have been seen,” Independent Securities trader Ryan Woods said.
Limiting further gains, Group Five fell 14.40 percent to 10.70 rand after it said it would let Greenbay’s 1.6 billion rand ($117 million) offer for its European assets lapse by 1500 GMT on Friday. ($1 = 13.7289 rand) (Reporting by Alexander Winning, Mfuneko Toyana and Tanisha Heiberg; Editing by James Macharia)