Rand recovery after weakening, but we’re not out of the storm yet

(Reuters) The rand firmed late on Tuesday after tumbling to two-and-a-half week lows earlier when rating's agency Fitch warned that South Africa could lose its investment grade status.

By 1414 GMT the rand had gained 0.08 percent against the greenback to 11.7600, recovering after falling close to one percent at 11.8175, its weakest level since February 12.

Yields on government bonds rose at a government auction earlier, with the benchmark instrument due in 2026 up 7.5 basis points to 7.7 percent by late trade.

South Africa, the continent's most advanced economy but plagued with stubborn structural difficulties, recorded a 24.22 billion rand ($2.1 billion) trade deficit for January and is facing its worst power-supply crisis since 2008.

"The comments from Fitch served as catalyst to increase selling pressure on the rand in today's session," said Jana van Deventer, an economist at ETM Analytics.

"A downgrade from Fitch should not come as that much of a surprise," economist van der Venter said, but said the local currency could find enough technical support to avoid the 13-year low of 11.8925 it hit last month.

"The selloff in the rand in the past four sessions looks a little over done. We might need to see a correction first before another leg higher on the USD ZAR towards the 11.90 mark."

Fitch's head of EMEA sovereigns, Ed Parker, told Reuters in London, the budget and current account deficits were a concern.

"Our rating for South Africa is BBB with a negative outlook, so we are signalling that a downgrade is more likely than not," he said.

HSBC releases its February Purchasing Managers' Index at 0715 GMT on Wednesday, following a contraction in private sector business activity in January. (Reporting by Mfuneko Toyana; Editing by James Macharia)