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UPDATE 1-South Africa's rand weaker, stocks hit 3-1/2-month high

* Improved global sentiment, rand hedges lift stocks

* Rand 0.43 pct weaker (Updates prices, adds stocks)

JOHANNESBURG, Feb 18 (Reuters) - South Africa's rand weakened in late afternoon trade on Monday as investors awaited Wednesday's budget, when the finance minister is expected to unveil plans to shore up state-owned power utility Eskom.

Stocks rallied, with the Johannesburg All-share index and Top-40 index touching 3-1/2-month and 4-1/2-month highs respectively, with investors growing hopeful the United States and China will agree a deal to end their trade war.

At 1530 GMT, the rand was down 0.43 percent at 14.1300 per dollar compared with Friday's close of 14.0700 in New York.

Since the resumption of nationwide rolling power cuts by Eskom on Feb. 10, the rand has lost nearly 4 percent, breaching the psychological 14.00 mark as the crisis at the cash-strapped utility put a possible credit downgrade to junk back on the radar.

Although Eskom paused the blackouts on Friday for the first time in five days, it warned its creaking infrastructure could buckle at any time.

Finance Minister Tito Mboweni is expected to unveil a rescue package for Eskom in the annual budget on Wednesday.

"The size and structure of the provision of support for Eskom will be a critical consideration," RMB analysts Mpho Tsebe and Elena Ilkova said in a note.

"Eskom remains a significant fiscal risk and providing it with financial support might be credit-neutral for the sovereign, only if this is accompanied by broader measures to stabilize the power utility," they added.

Government bonds firmed, with the yield on the benchmark paper due in 2026 down 2.5 basis points to close at 8.855 percent.

On the bourse, the Johannesburg All-Share index ended the session up 1.16 percent at 55,259 points, a level last seen on Nov. 2, while the Top-40 index climbed 1.18 percent to 49,019 points, a level it last touched on Oct. 4.

"A little bit more confidence coming back into the market, that the U.S. and China can do a trade deal, so optimism is back again," Cratos Capital equities trader Greg Davies said.

U.S. and Chinese officials will continue negotiations in Washington this week after both sides reported progress at talks in Beijing last week.

Davies added that weaker rand was also helping the market "because the rand hedges and all the resources are climbing."

Rand-hedged shares make the bulk of their revenue outside South Africa and tend to rise as the currency weakens.

Royal Bafokeng Platinum topped the gainers, climbing 10 percent to 33 rand, while market heavyweight Naspers rose 1.93 percent to 3,115 rand and MediClinic gained 1.64 percent to 58.09 percent. (Reporting by Olivia Kumwenda-Mtambo and Nqobile Dludla; Editing by Mark Potter)